**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-KSB**

| [X] | Annual                report pursuant to section 13 or 15(d) of the Securities Exchange                Act of                1934 for the fiscal year ended June 30, 2005 or |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Family      Room Entertainment Corporation**

----

**PART      I**

**ITEM      1.**
**Description      of Business **

**General      Business Development**
** **

**Restructuring      Transaction**

**Asset      Purchase**

**Name      and Symbol Change**

**Family      Room Entertainment Business Overview **

----

**Financing      FMLY’s Motion Pictures**

**Distributing      FMLY’s Motion Pictures**

**The      Home Marketplace for Motion Picture Product**

----

| **Major                Customers**      |   | **June                30,** |
|-----------------------------------------|--------|-----------------------------|
|                                    |   |                        | **2005** | **2004** |
| NuImage/Millennium                Films | 86.78% | 76.67%                      |
| Lions                Gate Films         | 0.00%  | 8.04%                       |
| Regents                Films            |   | 0.00%                       | 10.33% |
| Platinium                Disc           |   | 1.00%                       | 0.00% |
| Lantern                Lane             |   | 1.00%                       | 0.00% |
| Other                                   |   |                        | 11.22% | 4.95% |
| Total                Revenue            |   | 100.00%                     | 100% |

**Technological      Developments**

**Foreign      Markets**

**New      Technologies**

**Motion      Picture Property Acquisition Process **

**FMLY      Feature Film Production **

----

**Film      Project History**

**Profit      Participation**

**Royalties**

----

----

| **FAMILY                ROOM ENTERTAINMENT CORPORATION**   |
|------------------------------------------------------------|
|                                                       |
| **SUMMARY                OF FILM PROJECT HISTORY (1) (4)** |
|                                                       |
| **Picture**                                                |   |   | **Fees                Received** |
| **Initial                Release Date**                    |   | **Function** | **Year                ended June 30,** |
| **and                Media Type**                          |   | **Performed                by FMLY (2)** |   |   |   |   |
|                                                       |   | **Type                of** |   |   |   |   |
| **Film                Credit Received**                    | **Principal                Talent** | **Production                Services** |   | **2004** |   | **2005** |
| **Speedway                Junky**                          | Jesse                Bradford, | Picture                originally produced |   |   |   |   |
|                                                       | Jordan                Brower, | by                a third party financier. |   |   |   |   |
| September                2001                              | Jonathan                Taylor | FMLY                subsequently |   |   |   |   |
|                                                       | Thomas,                Tiffani | acquired                50% ownership |   |   |   |   |
| Theatrical                                                 | Amber                Theisssen, | from                the financier and |   |   |   |   |
|                                                       | Warren                G, Daryl | receives                royalties if any |   |   |   |   |
|                                                       | Hannah |   |   |   |   |   |
|                                                       |   |   |   |   |   |   |
| Randall                Emmett &                        |   | Production                services |   |   |   |   |
| George                Furla                                |   | provided                include the |   |   |   |   |
| Producers                                                  |   | negotiation                of financing |   |   |   |   |
|                                                       |   | and                distribution of the |   |   |   |   |
|                                                       |   | picture,                and consulting |   |   |   |   |
|                                                       |   | services |   |   |   |   |
|                                                       |   |   | $ | 76,979 |   | (3) |
| **Held                For Ransom**                         | Dennis                Hopper, | Picture                originally produced |   |   |   |   |
|                                                       | Zachery                Ty Bryan, | by                a third party financier. |   |   |   |   |
| August                2000                                 | Kam                Heskin, | FMLY                subsequently |   |   |   |   |
|                                                       | Jordan                Brower, | acquired                100% ownership |   |   |   |   |
| Video/Cable                                                | Randy                Spelling, | from                said third party. |   |   |   |   |
|                                                       | Tsianina                Joelson, | receives                royalties, if any. |   |   |   |   |
|                                                       | &                Morgan Fairchild |   |   |   |   |   |
|                                                       |   |   |   | (3-A) | $ | 6,000 |
| **After                Sex**                               | Brooke                Shields, | Picture                originally produced |   |   |   |   |
|                                                       | Virginia                Madsen, | by                a third party financier. |   |   |   |   |
| August                2000                                 | D.B.                Sweeney, | FMLY                subsequently |   |   |   |   |
|                                                       | Dan                Cortese, | acquired                100% ownership |   |   |   |   |
| Video/Cable                                                | Maria                Pitillo, & | from                the financier and |   |   |   |   |
|                                                       | Johnathon                Schaech | receives                royalties, if any. |   |   |   |   |
|                                                       |   |   |   | (3-A) | $ | 6,000 |
| **I'm                Over Here Now**                       | Andrew                "Dice" | Picture                produced |   |   |   |   |
|                                                       | Clay | by                a third party financier. |   |   |   |   |
| March                2000                                  |   | FMLY                retains profit |   |   |   |   |
|                                                       |   | participation,                if any. |   |   |   |   |
| Pay-per-View/                Video                         |   | No                profit participation |   |   |   |   |
|                                                       |   | payments                received to date. |   |   |   |   |
|                                                       |   |   |   | (3) |   | (3) |

----

| **Picture**                               |                                |                                          | **Fees                Received**       |
|-------------------------------------------|-------------------------------------|-----------------------------------------------|----------------------------------------|
| **Initial                Release Date**   |                                | **Function**                                  | **Year                ended June 30,** |
| **and                Media Type**         |                                | **Performed                by FMLY (2)**      |                                   |   |   |   |
|                                      |                                | **Type                of**                    |                                   |   |   |   |
| **Film                Credit Received**   | **Principal                Talent** | **Production                Services**        |                                   | **2004** |   | **2005** |
| **Good                Advice**            | Charlie                Sheen,       | Picture                produced by FMLY       |                                   |   |   |   |
|                                      | Angie                Harmon,        | in                conjunction with a third    |                                   |   |   |   |
| December                2001              | Denise                Richards,     | party.                FMLY retains            |                                   |   |   |   |
|                                      | Rosanna                Arquette,    | primary                ownership and          |                                   |   |   |   |
| Video/Cable                               | &                Jon Lovitz     | receives                royalties, if any.    |                                   |   |   |   |
|                                      |                                |                                          |                                   |   |   |   |
| Randall                Emmett &       |                                | Production                services            |                                   |   |   |   |
| George                Furla               |                                | provided                include the           |                                   |   |   |   |
| Producers                                 |                                | negotiation                of financing       |                                   |   |   |   |
|                                      |                                | and                distribution of the        |                                   |   |   |   |
|                                      |                                | picture,                and consulting        |                                   |   |   |   |
|                                      |                                | services                during                |                                   |   |   |   |
|                                      |                                | development,                during            |                                   |   |   |   |
|                                      |                                | principal                photography,         |                                   |   |   |   |
|                                      |                                | and                during post                |                                   |   |   |   |
|                                      |                                | production                (to ensure          |                                   |   |   |   |
|                                      |                                | that                the film was              |                                   |   |   |   |
|                                      |                                | completed                on time and          |                                   |   |   |   |
|                                      |                                |  within                budget).          | $                                      | 60,000 |   | (3) |
| **Ticker**                                | Tom                Sizemore,        | Produced                by a third party      |                                   |   |   |   |
|                                      | Steven                Seagal,       | financier.                FMLY provided       |                                   |   |   |   |
| December                2001              | Jamie                Pressly, & | production                services and        |                                   |   |   |   |
|                                      | Dennis                Hopper        | financing                and received         |                                   |   |   |   |
| Video/Cable                               |                                | a                fee and profit               |                                   |   |   |   |
|                                      |                                | participation,                If any. No      |                                   |   |   |   |
|                                      |                                | profit                participation to        |                                   |   |   |   |
|                                      |                                | received                to date               |                                   |   |   |   |
|                                      |                                |                                          |                                   | (3) |   | (3) |
| **The                Badge**              | Billy                Bob Thornton,  | Produced                by a third party      |                                   |   |   |   |
| **(f/k/a                Behind the Sun)** | Patricia                Arquette,   | financier.                FMLY provided       |                                   |   |   |   |
|                                      | &                Seal Ward      | production                services and        |                                   |   |   |   |
| September                2002             |                                | received                a fee and             |                                   |   |   |   |
|                                      |                                | profit                participation, if any.  |                                   |   |   |   |
| Video/Cable                               |                                | No                profit participation        |                                   |   |   |   |
|                                      |                                | received                to date.              |                                   |   |   |   |
|                                      |                                |                                          |                                   |   |   |   |
| Randall                Emmett &       |                                | Production                services            |                                   |   |   |   |
| George                Furla               |                                | provided                include the           |                                   |   |   |   |
| Executive                Producers        |                                | negotiation                of financing       |                                   |   |   |   |
|                                      |                                | and                distribution of the        |                                   |   |   |   |
|                                      |                                | picture,                and consulting        |                                   |   |   |   |
|                                      |                                | services                during develop-       |                                   |   |   |   |
|                                      |                                | ment,                during principal photo-  |                                   |   |   |   |
|                                      |                                | graphy,                and during post        |                                   |   |   |   |
|                                      |                                | production                (to ensure that,    |                                   |   |   |   |
|                                      |                                | On                behalf of the financier     |                                   |   |   |   |
|                                      |                                | and                distributor, that creative |                                   |   |   |   |
|                                      |                                | and                financial resources        |                                   |   |   |   |
|                                      |                                |  were                fully utilized)     |                                   | (3) |   | (3) |

----

| **Picture**                             |                                |                                            | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|-------------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                    | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**        |                                   |   |   |   |
|                                    |                                | **Type                of**                      |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**          |                                   | **2004** |   | **2005** |
| **Run                for the Money**    | Christian                Slater,    | Produced                by a third party        |                                   |   |   |   |
|                                    | Val                Kilmer,          | financier.                FMLY provided         |                                   |   |   |   |
| February                2002            | Daryl                Hannah,        | production                services and          |                                   |   |   |   |
|                                    | Bokeem                Woodbine,     | received                a fee and               |                                   |   |   |   |
| Video/Cable                             | &                Vern Troyer    | profit                participation, if any.    |                                   |   |   |   |
|                                    |                                | No                profit participation          |                                   |   |   |   |
|                                    |                                | received                to date.                |                                   |   |   |   |
|                                    |                                |                                            |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services              |                                   |   |   |   |
| George                Furla             |                                | provided                include following:      |                                   |   |   |   |
| Producers                               |                                | Negotiated                for the acting        |                                   |   |   |   |
|                                    |                                | services                of Val Kilmer,          |                                   |   |   |   |
|                                    |                                | Christian                Slater and Daryl       |                                   |   |   |   |
|                                    |                                | Hannah;                negotiated for the       |                                   |   |   |   |
|                                    |                                | financing                and distribution       |                                   |   |   |   |
|                                    |                                | of                the film and provided         |                                   |   |   |   |
|                                    |                                | consulting                services during       |                                   |   |   |   |
|                                    |                                | development,                during              |                                   |   |   |   |
|                                    |                                | principal                photography,           |                                   |   |   |   |
|                                    |                                | and                during post production       |                                   |   |   |   |
|                                    |                                | (to                ensure that, on              |                                   |   |   |   |
|                                    |                                | behalf                of the financier          |                                   |   |   |   |
|                                    |                                | and                distributor, that creative   |                                   |   |   |   |
|                                    |                                | and                financial resources          |                                   |   |   |   |
|                                    |                                | were                fully utilized)             |                                   |   |   |   |
|                                    |                                |                                            |                                   | (3) |   | (3) |
| **Half                Past Dead**       | Steven                Seagal,       | Produced                by a third party        |                                   |   |   |   |
|                                    | Morris                Chestnut,     | financier.                FMLY provided         |                                   |   |   |   |
| November                2002            | &                Ja Rule        | production                services and          |                                   |   |   |   |
|                                    |                                | received                a fee and profit        |                                   |   |   |   |
| Theatrical                              |                                | participation,                if any. No profit |                                   |   |   |   |
|                                    |                                | participation                received to date.  |                                   |   |   |   |
|                                    |                                |                                            |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services prov-        |                                   |   |   |   |
| George                Furla             |                                | ided                included negotiating        |                                   |   |   |   |
| Executive                Producers      |                                | for                the services of Steven       |                                   |   |   |   |
|                                    |                                |  Segal                for the picture      |                                   | (3) |   | (3) |
| **Narc**                                | Ray                Liotta,          | Produced                by a third party        |                                   |   |   |   |
|                                    | Jason                Patric,        | financier.                FMLY provided         |                                   |   |   |   |
| December                2002            | &                Busta Rhymes   | production                services and          |                                   |   |   |   |
|                                    |                                | financing                and received           |                                   |   |   |   |
| Theatrical                              |                                | a                fee and profit participation,  |                                   |   |   |   |
|                                    |                                | if                any. No profit participation  |                                   |   |   |   |
|                                    |                                | received                to date.                |                                   |   |   |   |
|                                    |                                |                                            |                                   |   |   |   |
|                                    |                                |                                            |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services              |                                   |   |   |   |
| George                Furla             |                                | provided                include consulting      |                                   |   |   |   |
| Executive                Producers      |                                | on                the financing of the          |                                   |   |   |   |
|                                    |                                | of                the picture.                  |                                   |   |   |   |
|                                    |                                |                                            |                                   | (3) |   | (3) |

----

| **Picture**                              |                                |                                         | **Fees                Received**       |
|------------------------------------------|-------------------------------------|----------------------------------------------|----------------------------------------|
| **Initial                Release Date**  |                                | **Function**                                 | **Year                ended June 30,** |
| **and                Media Type**        |                                | **Performed                by FMLY (2)**     |                                   |   |   |   |
|                                     |                                | **Type                of**                   |                                   |   |   |   |
| **Film                Credit Received**  | **Principal                Talent** | **Production                Services**       |                                   | **2004** |   | **2005** |
| **The                Devil and**         | Alec                Baldwin,        | Produced                by a third party     |                                   |   |   |   |
| **Daniel                Webster**        | Anthony                Hopkins,     | financier.                FMLY provided      |                                   |   |   |   |
|                                     | &                Jennifer Love  | production                services and       |                                   |   |   |   |
| March                2003                | Hewitt                              | received                a fee and            |                                   |   |   |   |
|                                     |                                | profit                participation, if any. |                                   |   |   |   |
| Video/Cable                              |                                | No                profit participation       |                                   |   |   |   |
| (Foreign                Release)         |                                | received                to date.             |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         | $                                      | - | $ | - |
| **All                I Want**            | Elijah                Wood,         | Produced                by a third party     |                                   |   |   |   |
| **(f/k/a                Try Seventeen)** | Franka                Potente,      | financier.                FMLY provided      |                                   |   |   |   |
|                                     | &                Mandy Moore    | production                services and       |                                   |   |   |   |
| September                2003            |                                | received                a fee and            |                                   |   |   |   |
|                                     |                                | profit                participation, if any. |                                   |   |   |   |
| Video/Cable                              |                                | No                profit participation       |                                   |   |   |   |
|                                     |                                | received                to date.             |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Randall                Emmett &      |                                | Production                services           |                                   |   |   |   |
| George                Furla              |                                | provided                include              |                                   |   |   |   |
| Producers                                |                                | consulting                on the financing   |                                   |   |   |   |
|                                     |                                | of                the picture.               |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         | $                                      | - | $ | (3) |
| **Out                for a Kill**        | Steven                Seagal        | Produced                by a third party     |                                   |   |   |   |
|                                     |                                | financier.                FMLY provided      |                                   |   |   |   |
| August                2003               |                                | production                services and       |                                   |   |   |   |
|                                     |                                | received                a fee and            |                                   |   |   |   |
| Video/Cable                              |                                | profit                participation, if any. |                                   |   |   |   |
|                                     |                                | No                profit participation       |                                   |   |   |   |
|                                     |                                | received                to date.             |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Randall                Emmett &      |                                | Production                services           |                                   |   |   |   |
| George                Furla              |                                | provided                include              |                                   |   |   |   |
| Producers                                |                                | negotiating                for the services  |                                   |   |   |   |
|                                     |                                | of                Steven Segal for the       |                                   |   |   |   |
|                                     |                                | picture                and providing         |                                   |   |   |   |
|                                     |                                | consulting                services during    |                                   |   |   |   |
|                                     |                                | development,                on location      |                                   |   |   |   |
|                                     |                                | and                during principal          |                                   |   |   |   |
|                                     |                                | photography                                  |                                   |   |   |   |
|                                     |                                | (to                ensure that the film      |                                   |   |   |   |
|                                     |                                | was                completed on time and     |                                   |   |   |   |
|                                     |                                | within                budget).               |                                   |   |   |   |
|                                     |                                |                                         | $                                      | - | $ | - |

----

| **Picture**                             |                                |                                          | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|-----------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                  | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**      |                                   |   |   |   |
|                                    |                                | **Type                of**                    |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**        |                                   | **2004** |   | **2005** |
| **Belly                of the Beast**   | Steven                Seagal        | Produced                by a third party      |                                   |   |   |   |
|                                    |                                | financier.                FMLY provided       |                                   |   |   |   |
| December                2003            |                                | production                services and        |                                   |   |   |   |
|                                    |                                | received                a fee and             |                                   |   |   |   |
| Video/Cable                             |                                | profit                participation, if any.  |                                   |   |   |   |
|                                    |                                | No                profit participation        |                                   |   |   |   |
|                                    |                                | received                to date.              |                                   |   |   |   |
|                                    |                                |                                          |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services            |                                   |   |   |   |
| George                Furla             |                                | provided                include               |                                   |   |   |   |
| Executive                Producers      |                                | negotiating                for the services   |                                   |   |   |   |
|                                    |                                | of                Steven Segal for the        |                                   |   |   |   |
|                                    |                                | picture                and providing          |                                   |   |   |   |
|                                    |                                | consulting                services during     |                                   |   |   |   |
|                                    |                                | development,                on location       |                                   |   |   |   |
|                                    |                                | and                during principal           |                                   |   |   |   |
|                                    |                                | photography                                   |                                   |   |   |   |
|                                    |                                | (to                ensure that the film       |                                   |   |   |   |
|                                    |                                | was                completed on time and      |                                   |   |   |   |
|                                    |                                | within                budget).                |                                   |   |   |   |
|                                    |                                |                                          | $                                      | - | $ | - |
| **Blind                Horizon**        | Val                Kilmer,          | Produced                by a third party      |                                   |   |   |   |
|                                    | Neve                Campbell,       | financier.                FMLY provided       |                                   |   |   |   |
| March                2005               | Sam                Shepard &    | production                services and        |                                   |   |   |   |
| (Estimated                Release)      | Faye                Dunaway         | received                a fee and             |                                   |   |   |   |
|                                    |                                | profit                participation, if any.  |                                   |   |   |   |
| Video/Cable                             |                                | No                profit participation        |                                   |   |   |   |
|                                    |                                | received                to date.              |                                   |   |   |   |
|                                    |                                |                                          |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services            |                                   |   |   |   |
| George                Furla             |                                | provided                include               |                                   |   |   |   |
| Producers                               |                                | negotiating                for the acting     |                                   |   |   |   |
|                                    |                                | services                of Val Kilmer,        |                                   |   |   |   |
|                                    |                                | negotiating                for the financing  |                                   |   |   |   |
|                                    |                                | and                distribution of the        |                                   |   |   |   |
|                                    |                                | picture                and providing          |                                   |   |   |   |
|                                    |                                | consulting                services during     |                                   |   |   |   |
|                                    |                                | development,                during            |                                   |   |   |   |
|                                    |                                | principal                photography and      |                                   |   |   |   |
|                                    |                                | during                post production         |                                   |   |   |   |
|                                    |                                | (to                ensure that, on            |                                   |   |   |   |
|                                    |                                | behalf                of the financier        |                                   |   |   |   |
|                                    |                                | and                distributor, that creative |                                   |   |   |   |
|                                    |                                | and                financial resources        |                                   |   |   |   |
|                                    |                                | were                fully utilized)           |                                   |   |   |   |
|                                    |                                |                                          | $                                      | - | $ | - |

----

| **Picture**                              |                                |                                         | **Fees                Received**       |
|------------------------------------------|-------------------------------------|----------------------------------------------|----------------------------------------|
| **Initial                Release Date**  |                                | **Function**                                 | **Year                ended June 30,** |
| **and                Media Type**        |                                | **Performed                by FMLY (2)**     |                                   |   |   |   |
|                                     |                                | **Type                of**                   |                                   |   |   |   |
| **Film                Credit Received**  | **Principal                Talent** | **Production                Services**       |                                   | **2004** |   | **2005** |
| **Control**                              | Ray                Liotta, &    | Produced                by a third party     |                                   |   |   |   |
|                                     | William                Dafoe        | financier.                FMLY provided      |                                   |   |   |   |
| March                2005                |                                | production                services and       |                                   |   |   |   |
| (Estimated                Release)       |                                | received                a fee and            |                                   |   |   |   |
|                                     |                                | profit                participation, if any. |                                   |   |   |   |
| Video/Cable                              |                                | No                profit participation       |                                   |   |   |   |
|                                     |                                | received                to date.             |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Randall                Emmett &      |                                | Production                services           |                                   |   |   |   |
| George                Furla              |                                | provided                include negotiating  |                                   |   |   |   |
| Producers                                |                                | for                the acquisition of the    |                                   |   |   |   |
|                                     |                                | rights                in and to the screen-  |                                   |   |   |   |
|                                     |                                | play                upon which the picture   |                                   |   |   |   |
|                                     |                                | was                based and negotiating     |                                   |   |   |   |
|                                     |                                | the                acting services           |                                   |   |   |   |
|                                     |                                | agreement                with Ray Liotta.    |                                   |   |   |   |
|                                     |                                | Also                performed consulting     |                                   |   |   |   |
|                                     |                                | services                during principal     |                                   |   |   |   |
|                                     |                                | photography                and through-      |                                   |   |   |   |
|                                     |                                | out                the post production       |                                   |   |   |   |
|                                     |                                | process                to assist in getting  |                                   |   |   |   |
|                                     |                                | the                picture completed on      |                                   |   |   |   |
|                                     |                                | time                and within budget.       |                                   |   |   |   |
|                                     |                                |                                         | $                                      | 117,500 | $ | - |
| **Love                Song for Bobby**   | John                Travolta &  | Produced                by a third party     |                                   |   |   |   |
| **Long**                                 | Scarlett                Johansson   | financier.                FMLY provided      |                                   |   |   |   |
|                                     |                                | production                services and       |                                   |   |   |   |
| December                2004             |                                | received                a fee and            |                                   |   |   |   |
|                                     |                                | profit                participation, if any. |                                   |   |   |   |
| Theatrical                               |                                | No                profit participation       |                                   |   |   |   |
|                                     |                                | received                to date.             |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Randall                Emmett &      |                                | Production                services           |                                   |   |   |   |
| George                Furla              |                                | provided                include consulting   |                                   |   |   |   |
| Executive                Producers       |                                | in                the negotiations for the   |                                   |   |   |   |
|                                     |                                | acting                services of John       |                                   |   |   |   |
|                                     |                                | Travolta                for the picture.     |                                   |   |   |   |
|                                     |                                |                                         | $                                      | 25,000 | $ | - |
| **The                Amityville Horror** | Ryan                Reynolds, & | Produced                by a third party     |                                   |   |   |   |
|                                     | Melissa                George       | financier.                FMLY provided      |                                   |   |   |   |
| April                2005                |                                | development                services and      |                                   |   |   |   |
| (Scheduled                Release)       |                                | received                a fee.               |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Theatrical                               |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Randall                Emmett &      |                                | Production                services           |                                   |   |   |   |
| George                Furla              |                                | provided                include negotiating  |                                   |   |   |   |
| Co-                Executive Producers   |                                | for                the acquisition of the    |                                   |   |   |   |
|                                     |                                | rights                in and to the picture  |                                   |   |   |   |
|                                     |                                | and                subsequently              |                                   |   |   |   |
|                                     |                                | negotiated                for their sale     |                                   |   |   |   |
|                                     |                                | to                NuImage.                   |                                   |   |   |   |
|                                     |                                |                                         | $                                      | 110,516 | $ | 500,000 |

----

| **Picture**                             |                                |                                          | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|-----------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                  | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**      |                                   |   |   |   |
|                                    |                                | **Type                of**                    |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**        |                                   | **2004** |   | **2005** |
| **Edison**                              | Morgan                Freeman,      | Produced                by a third party      |                                   |   |   |   |
|                                    | Justin                Timberlake,   | financier.                FMLY provided       |                                   |   |   |   |
| December                2005            | LL                Cool J, &     | production                services and        |                                   |   |   |   |
| (Estimated                Release)      | Kevin                Spacey         | received                a fee and             |                                   |   |   |   |
|                                    |                                | profit                participation, if any,  |                                   |   |   |   |
|                                    |                                | in                the film.                   |                                   |   |   |   |
| Theatrical                              |                                |                                          |                                   |   |   |   |
|                                    |                                |                                          |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services            |                                   |   |   |   |
| George                Furla             |                                | provided                include negotiating   |                                   |   |   |   |
| Producers                               |                                | for                the acquisition of the     |                                   |   |   |   |
|                                    |                                | rights                in and to the screen-   |                                   |   |   |   |
|                                    |                                | play                upon which the picture    |                                   |   |   |   |
|                                    |                                | was                based as well as           |                                   |   |   |   |
|                                    |                                | the                acting services            |                                   |   |   |   |
|                                    |                                | agreements                of Morgan           |                                   |   |   |   |
|                                    |                                | Freeman,                Justin Timberlake,    |                                   |   |   |   |
|                                    |                                | LL                Cool J and Kevin            |                                   |   |   |   |
|                                    |                                | Spacey.                Also provided          |                                   |   |   |   |
|                                    |                                | consulting                services            |                                   |   |   |   |
|                                    |                                | during                principal               |                                   |   |   |   |
|                                    |                                | photography                and the post       |                                   |   |   |   |
|                                    |                                | production                process.            |                                   |   |   |   |
|                                    |                                | (to                ensure that, on            |                                   |   |   |   |
|                                    |                                | behalf                of the financier        |                                   |   |   |   |
|                                    |                                | and                distributor, that creative |                                   |   |   |   |
|                                    |                                | and                financial resources        |                                   |   |   |   |
|                                    |                                | were                fully utilized)           |                                   |   |   |   |
|                                    |                                |                                          | $                                      | 250,000 | $ | - |
| **Submerged**                           | Steven                Seagal        | Produced                by a third party      |                                   |   |   |   |
|                                    |                                | financier.                FMLY provided       |                                   |   |   |   |
| August                2005              |                                | development                services and       |                                   |   |   |   |
| (Estimated                Release)      |                                | received                a fee.                |                                   |   |   |   |
|                                    |                                |                                          |                                   |   |   |   |
| Video/Cable                             |                                |                                          |                                   |   |   |   |
|                                    |                                |                                          |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services            |                                   |   |   |   |
| George                Furla             |                                | provided                include               |                                   |   |   |   |
| Producers                               |                                | negotiating                an acting          |                                   |   |   |   |
|                                    |                                | services                agreement with        |                                   |   |   |   |
|                                    |                                | Steven                Segal for the           |                                   |   |   |   |
|                                    |                                | picture                and providing          |                                   |   |   |   |
|                                    |                                | consulting                services during     |                                   |   |   |   |
|                                    |                                | development,                and on            |                                   |   |   |   |
|                                    |                                | location                during principal      |                                   |   |   |   |
|                                    |                                | photography.                                  |                                   |   |   |   |
|                                    |                                |                                          | $                                      | - | $ | 300,000 |

----

| **Picture**                             |                                |                                        | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|---------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**    |                                   |   |   |   |
|                                    |                                | **Type                of**                  |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**      |                                   | **2004** |   | **2005** |
| **The                Tenants**          | Dylan                McDermott,     | Produced                by a third party    |                                   |   |   |   |
|                                    | Snoop                Doggy Dogg,    | financier.                FMLY provided     |                                   |   |   |   |
| December                2005            | &                Peter Falk     | production                services and      |                                   |   |   |   |
| (Estimated                Release)      |                                | financing                and received       |                                   |   |   |   |
|                                    |                                | a                fee and profit             |                                   |   |   |   |
| Theatrical                              |                                | participation,                if any, in    |                                   |   |   |   |
|                                    |                                | the                film.                    |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include             |                                   |   |   |   |
| Producers                               |                                | negotiating                the financing    |                                   |   |   |   |
|                                    |                                | of                the picture and its       |                                   |   |   |   |
|                                    |                                | distribution                by NuImage.     |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | 12,000 |
| **Today                You Die**        | Steven                Seagal        | Produced                by a third party    |                                   |   |   |   |
|                                    |                                | financier.                FMLY provided     |                                   |   |   |   |
| December                2005            |                                | production                services and      |                                   |   |   |   |
| (Estimated                Release)      |                                | received                a fee and profit    |                                   |   |   |   |
|                                    |                                | participation,                if any, in    |                                   |   |   |   |
| Video/Cable                             |                                | the                film                     |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include             |                                   |   |   |   |
| Producers                               |                                | negotiating                an acting        |                                   |   |   |   |
|                                    |                                | services                agreement with      |                                   |   |   |   |
|                                    |                                | Steven                Segal for the         |                                   |   |   |   |
|                                    |                                | picture                and providing        |                                   |   |   |   |
|                                    |                                | consulting                services during   |                                   |   |   |   |
|                                    |                                | development,                and on          |                                   |   |   |   |
|                                    |                                | location                during principal    |                                   |   |   |   |
|                                    |                                | photography.                                |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | 200,000 |
| **Wonderland**                          | Val                Kilmer,          | Produced                by a third party    |                                   |   |   |   |
|                                    | Kate                Bosworth,       | financier.                FMLY provided     |                                   |   |   |   |
| October                2003             | Lisa                Kudrow,         | development                services and     |                                   |   |   |   |
|                                    | Josh                Lucas &     | received                a fee.              |                                   |   |   |   |
| Theatrical                              | Dylan                Mcdermott      |                                        |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include             |                                   |   |   |   |
| Executive                Producers      |                                | obtaining                financing          |                                   |   |   |   |
|                                    |                                | and                negotiating for the      |                                   |   |   |   |
|                                    |                                | distribution                of the picture. |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | - |

----

| **Picture**                             |                                |                                        | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|---------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**    |                                   |   |   |   |
|                                    |                                | **Type                of**                  |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**      |                                   | **2004** |   | **2005** |
| **Loverboy**                            | Kyra                Sdgwick,        | Produced                by a third party    |                                   |   |   |   |
|                                    | Kevin                Bacon,         | financier.                FMLY provided     |                                   |   |   |   |
| May                2005                 | Sandra                Bullock,      | development                services and     |                                   |   |   |   |
|                                    | Matt                Dillon,         | received                a fee.              |                                   |   |   |   |
| Theatrical                              | Oliver                Platt &   |                                        |                                   |   |   |   |
|                                    | Marissa                Tomei        |                                        |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include             |                                   |   |   |   |
| Co-                Executive Producers  |                                | consulting                on the financing  |                                   |   |   |   |
|                                    |                                | and                distribution of the      |                                   |   |   |   |
|                                    |                                | picture.                                    |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | - |
| **Shottas**                             | Ky-Mani                Marley,      | Produced                by a third party    |                                   |   |   |   |
|                                    | Spragga                Benz,        | financier.                FMLY provided     |                                   |   |   |   |
| December                2005            | Wyclef                Jean,         | post-production                services     |                                   |   |   |   |
| (Estimated                Release)      | &                Louie Rankin   | and                financing and will       |                                   |   |   |   |
|                                    |                                | receive                a fee and profit     |                                   |   |   |   |
| Video/Cable                             |                                | participation,                if any, in    |                                   |   |   |   |
|                                    |                                | the                film.                    |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include             |                                   |   |   |   |
| Co-                Executive Producers  |                                | consulting                on the financing  |                                   |   |   |   |
|                                    |                                | and                distribution of the      |                                   |   |   |   |
|                                    |                                | picture.                                    |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | - |
| **Black                Widow**          | William                Dafoe        | Produced                by a third party    |                                   |   |   |   |
| **aka                The Widows**       |                                | financier.                FMLY provided     |                                   |   |   |   |
| **Lover**                               |                                | development                services         |                                   |   |   |   |
|                                    |                                | and                received a fee.          |                                   |   |   |   |
| March                2006               |                                |                                        |                                   |   |   |   |
| (Estimated                Release)      |                                |                                        |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Theatrical                              |                                |                                        |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include obtaining   |                                   |   |   |   |
| Executive                Producers      |                                | financing,                negotiating for   |                                   |   |   |   |
|                                    |                                | distribution                of the picture, |                                   |   |   |   |
|                                    |                                | and                providing consulting     |                                   |   |   |   |
|                                    |                                | services                during              |                                   |   |   |   |
|                                    |                                | development,                and on          |                                   |   |   |   |
|                                    |                                | location                during principal    |                                   |   |   |   |
|                                    |                                | photography.                                |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | - |

----

| **Picture**                             |                                |                                         | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|----------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                 | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**     |                                   |   |   |   |
|                                    |                                | **Type                of**                   |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**       |                                   | **2004** |   | **2005** |
| **Lonely                Hearts**        | John                Travolta,       | Produced                by a third party     |                                   |   |   |   |
|                                    | James                Gandofini,     | financier.                FMLY provided      |                                   |   |   |   |
| March                2006               | &                Salma Hayek    | development                services          |                                   |   |   |   |
| (Estimated                Release)      |                                | and                received a fee.           |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Theatrical                              |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services           |                                   |   |   |   |
| George                Furla             |                                | provided                include              |                                   |   |   |   |
| Co-Executive                Producers   |                                | negotiating                an acting         |                                   |   |   |   |
|                                    |                                | services                agreement for this   |                                   |   |   |   |
|                                    |                                | picture                with John Travolta    |                                   |   |   |   |
|                                    |                                | and                providing consulting      |                                   |   |   |   |
|                                    |                                | services                during               |                                   |   |   |   |
|                                    |                                | development,                and on           |                                   |   |   |   |
|                                    |                                | location                during principal     |                                   |   |   |   |
|                                    |                                | photography.                                 |                                   |   |   |   |
|                                    |                                |                                         | $                                      | - | $ | 100,000 |
| **Mercenary**                           | Steven                Seagal        | Produced                by a third party     |                                   |   |   |   |
|                                    |                                | financier.                FMLY provided      |                                   |   |   |   |
| April                2006               |                                | production                services and       |                                   |   |   |   |
| (Estimated                Release)      |                                | and                received a fee.           |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Video/Cable                             |                                | 2005                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services           |                                   |   |   |   |
| George                Furla             |                                | provided                include              |                                   |   |   |   |
| Producers                               |                                | negotiating                an acting         |                                   |   |   |   |
|                                    |                                | services                agreement with       |                                   |   |   |   |
|                                    |                                | Steven                Segal for the          |                                   |   |   |   |
|                                    |                                | picture                and providing         |                                   |   |   |   |
|                                    |                                | consulting                services during    |                                   |   |   |   |
|                                    |                                | development,                and on           |                                   |   |   |   |
|                                    |                                | location                during principal     |                                   |   |   |   |
|                                    |                                | photography.                                 |                                   |   |   |   |
|                                    |                                | **Note:                We do not have a**    |                                   |   |   |   |
|                                    |                                | **contract                on this project;** |                                   |   |   |   |
|                                    |                                | **and                are uncertain about**   |                                   |   |   |   |
|                                    |                                | **profit                participation.**     |                                   |   |   |   |
|                                    |                                |                                         | $                                      | - | $ | 300,000 |

----

| **Picture**                             |                                |                                         | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|----------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                 | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**     |                                   |   |   |   |
|                                    |                                | **Type                of**                   |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**       |                                   | **2004** |   | **2005** |
| **16                Blocks**            | Bruce                Willis         | Produced                by a third party     |                                   |   |   |   |
|                                    | Mos                Def              | financier.                FMLY provided      |                                   |   |   |   |
| May                2006                 |                                | production                services and       |                                   |   |   |   |
| (Estimated                Release)      |                                | and                received a fee.           |                                   |   |   |   |
|                                    |                                | 2005.                Additionally, we        |                                   |   |   |   |
| Theatrical                              |                                | will                receive a profit         |                                   |   |   |   |
|                                    |                                | participation,                if any, in the |                                   |   |   |   |
|                                    |                                | film.                                        |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services           |                                   |   |   |   |
| George                Furla             |                                | provided                include negotiating  |                                   |   |   |   |
| Producer/                               |                                | for                the acquisition of the    |                                   |   |   |   |
| Executive                Producer       |                                | rights                in and to the screen-  |                                   |   |   |   |
|                                    |                                | play                upon which the picture   |                                   |   |   |   |
|                                    |                                | was                based as well as          |                                   |   |   |   |
|                                    |                                | the                acting services           |                                   |   |   |   |
|                                    |                                | agreements                of Bruce           |                                   |   |   |   |
|                                    |                                | Willis                and the directing      |                                   |   |   |   |
|                                    |                                | services                of Richard           |                                   |   |   |   |
|                                    |                                | Donner.                Also provided         |                                   |   |   |   |
|                                    |                                | consulting                services           |                                   |   |   |   |
|                                    |                                | during                principal              |                                   |   |   |   |
|                                    |                                | photography                and the post      |                                   |   |   |   |
|                                    |                                | production                process.           |                                   |   |   |   |
|                                    |                                |                                         | $                                      | - | $ | 625,000 |
| **Borderland**                          | Brian                Presley        | Picture                produced by FMLY      |                                   |   |   |   |
|                                    | Jake                Muxworthy       | in                conjunction with a third   |                                   |   |   |   |
| April                2006               | Rider                Strong         | party.                FMLY retains           |                                   |   |   |   |
| (Estimated                Release)      | Sean                Astin           | 50%                ownership and             |                                   |   |   |   |
| Theatrical                              | Beto                Cuevas          | receives                royalties, if any.   |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services           |                                   |   |   |   |
| George                Furla             |                                | provided                include the          |                                   |   |   |   |
| Producers                               |                                | negotiation                of financing      |                                   |   |   |   |
|                                    |                                | and                distribution of the       |                                   |   |   |   |
|                                    |                                | picture,                and consulting       |                                   |   |   |   |
|                                    |                                | services                during               |                                   |   |   |   |
|                                    |                                | development,                during           |                                   |   |   |   |
|                                    |                                | principal                photography,        |                                   |   |   |   |
|                                    |                                | and                during post               |                                   |   |   |   |
|                                    |                                | production                (to ensure         |                                   |   |   |   |
|                                    |                                | that                the film was             |                                   |   |   |   |
|                                    |                                | completed                on time and         |                                   |   |   |   |
|                                    |                                |  within                budget).         | $                                      | - | $ | - |

----

| **Picture**                             |                                |                                         | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|----------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                 | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**     |                                   |   |   |   |
|                                    |                                | **Type                of**                   |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**       |                                   | **2004** |   | **2005** |
| **The                Wicker Man**       | Nicolas                Cage         | Produced                by a third party     |                                   |   |   |   |
|                                    | Ellen                Burstyn        | financier.                FMLY provided      |                                   |   |   |   |
| April                2006               | Leelee                Sobieski      | production                services and       |                                   |   |   |   |
| (Estimated                Release)      |                                | will                receive a producers      |                                   |   |   |   |
|                                    |                                | fee                in the first quarter of   |                                   |   |   |   |
| Theatrical                              |                                | 2006.                Additionally, we        |                                   |   |   |   |
|                                    |                                | will                receive a profit         |                                   |   |   |   |
|                                    |                                | participation,                if any, in the |                                   |   |   |   |
|                                    |                                | film.                (This project is in     |                                   |   |   |   |
|                                    |                                | production                with principal     |                                   |   |   |   |
|                                    |                                | photography                having started    |                                   |   |   |   |
|                                    |                                | on                July 28, 2005)             |                                   |   |   |   |
|                                    |                                |                                         | $                                      | - | $ | - |
| Randall                Emmett &     |                                | Production                services           |                                   |   |   |   |
| George                Furla             |                                | provided                include negotiating  |                                   |   |   |   |
| Producer/                               |                                | for                the acquisition of the    |                                   |   |   |   |
| Executive                Producer       |                                | rights                in and to the screen-  |                                   |   |   |   |
|                                    |                                | play                upon which the picture   |                                   |   |   |   |
|                                    |                                | was                based as well as          |                                   |   |   |   |
|                                    |                                | the                acting services           |                                   |   |   |   |
|                                    |                                | agreements                of Nicolas         |                                   |   |   |   |
|                                    |                                | Cage                and the directing        |                                   |   |   |   |
|                                    |                                | services                of Neil              |                                   |   |   |   |
|                                    |                                | La                Bute Also provided         |                                   |   |   |   |
|                                    |                                | consulting                services           |                                   |   |   |   |
|                                    |                                | during                principal              |                                   |   |   |   |
|                                    |                                | photography                and the post      |                                   |   |   |   |
|                                    |                                | production                process.           |                                   |   |   |   |
|                                    |                                |                                         | $                                      | - | $ | - |

----

| **Picture**                             |                                |                                     | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                             | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)** |                                   |   |   |   |
|                                    |                                | **Type                of**               |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**   |                                   | **2004** |   | **2005** |

| **The                Contract**     | Morgan                Freeman | Produced                by a third party              |   |   |   |   |
|-------------------------------------|-------------------------------|-------------------------------------------------------|--------|--------|--------|--------|
|                                | John                Cusack    | financier.                FMLY provided               |   |   |   |   |
| May                2006             |                          | production                services and                |   |   |   |   |
| (Estimated                Release)  |                          | will                receive a producers               |   |   |   |   |
|                                |                          | fee                in the first quarter of            |   |   |   |   |
| Theatrical                          |                          | 2006.                Additionally, we                 |   |   |   |   |
|                                |                          | will                receive a profit participation    |   |   |   |   |
|                                |                          | ,                if any, in the film (This project is |   |   |   |   |
|                                |                          | In                production with principal           |   |   |   |   |
|                                |                          | photography                having started             |   |   |   |   |
|                                |                          | on                July 11, 2005)                      |   |   |   |   |
|                                |                          |                                                  |   |   |   |   |
| Randall                Emmett & |                          | Production                services                    |   |   |   |   |
| George                Furla         |                          | provided                include negotiating           |   |   |   |   |
| Producer/                           |                          | for                the acquisition of the             |   |   |   |   |
| Executive                Producer   |                          | rights                in and to the screen-           |   |   |   |   |
|                                |                          | play                upon which the picture            |   |   |   |   |
|                                |                          | was                based as well as                   |   |   |   |   |
|                                |                          | the                acting services                    |   |   |   |   |
|                                |                          | agreements                of Morgan                   |   |   |   |   |
|                                |                          | Freemand                and John                      |   |   |   |   |
|                                |                          | Cusack                and the directing               |   |   |   |   |
|                                |                          | services                of Bruce                      |   |   |   |   |
|                                |                          | Beresford                Also provided                |   |   |   |   |
|                                |                          | consulting                services                    |   |   |   |   |
|                                |                          | during                principal                       |   |   |   |   |
|                                |                          | photography                and the post               |   |   |   |   |
|                                |                          | production                process.                    |   |   |   |   |
|                                |                          |                                                  | $      | -      | $      | -      |

----

| **Picture**                             |                                |                                     | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                             | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)** |                                   |   |   |   |
|                                    |                                | **Type                of**               |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**   |                                   | **2004** |   | **2005** |

| **88                Minutes**              | Al                Pacino | Produced                by a third party     |    |    |                           |                               |
|--------------------------------------------|--------------------------|----------------------------------------------|---------|---------|--------------------------------|------------------------------------|
|                                       |                     | financier.                FMLY provided      |    |    |                           |                               |
| September                2006              |                     | production                services and       |    |    |                           |                               |
| (Estimated                Release)         |                     | will                receive a producers      |    |    |                           |                               |
|                                       |                     | fee                in the first quarter of   |    |    |                           |                               |
| Theatrical                                 |                     | 2006.                Additionally, we        |    |    |                           |                               |
|                                       |                     | will                receive a profit         |    |    |                           |                               |
|                                       |                     | participation,                if any, in the |    |    |                           |                               |
|                                       |                     | film.                (This project is in     |    |    |                           |                               |
|                                       |                     | production                with principal     |    |    |                           |                               |
|                                       |                     | photography                having started    |    |    |                           |                               |
|                                       |                     | on                July 11, 2005)             |    |    |                           |                               |
|                                       |                     |                                         |    |    |                           |                               |
| Randall                Emmett &        |                     | Production                services           |    |    |                           |                               |
| George                Furla                |                     | provided                include negotiating  |    |    |                           |                               |
| Producer/                                  |                     | for                the acquisition of the    |    |    |                           |                               |
| Executive                Producer          |                     | rights                in and to the screen-  |    |    |                           |                               |
|                                       |                     | play                upon which the picture   |    |    |                           |                               |
|                                       |                     | was                based as well as          |    |    |                           |                               |
|                                       |                     | the                acting services           |    |    |                           |                               |
|                                       |                     | agreements                of Al              |    |    |                           |                               |
|                                       |                     | Pacino                and the directing      |    |    |                           |                               |
|                                       |                     | services                of Jon               |    |    |                           |                               |
|                                       |                     | Avnet.                Also provided          |    |    |                           |                               |
|                                       |                     | consulting                services           |    |    |                           |                               |
|                                       |                     | during                principal              |    |    |                           |                               |
|                                       |                     | photography                and the post      |    |    |                           |                               |
|                                       |                     | production                process.           |    |    |                           |                               |
|                                       |                     |                                         | $       | -       | $                              | -                                  |
|                                       |                     |                                         |    |    |                           |                               |
| Royalties                and other revenue |                     |                                         | 105,440 |    | 281,534                281,534 |
|                                       |                     |                                         |    |    |                           |                               |
| Total                                      |                     |                                         | $       | 745,435 | $                              | 2,330,534                2,330,534 |
|                                       |                     |                                         |    |    |                           |                               |
| **Revenue                by Customer (5)** |                     |                                         |    |    |                           |                               |
| Nuimage/Millenium                          |                     |                                         | $       | 571,511 | $                              | 2,278,000                2,278,000 |
| Lions                Gate Films            |                     |                                         |    | 60,000  |                           | -                                  |
| Regent                Films                |                     |                                         |    | 76,979  |                           | -                                  |
| Other                                      |                     |                                         |    | 36,945  |                           | 52,534                52,534       |
|                                       |                     |                                         |    |    |                           |                               |
|                                       |                     |                                         | $       | 745,435 | $                              | 2,330,534                2,330,534 |
|                                       |                     |                                         |    |    |                           |                               |

----

| **(1)                The following is a chronological history of film projects that were                developed, packaged and/or produced by**                      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **FMLY                for third party financiers (unless otherwise noted) and for third                party                distributors and have been either**       |
| **produced,                released or waiting to be released by third parties in fiscal years                2000                through 2004, and/or are**          |
| **scheduled                for release in fiscal 2005**                                                                                                               |   |   |   |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |
| **(2)                Substantially all production, financing, and motion picture related                services provided by FMLY are performed**                     |
| **by                Randall Emmett and George Furla, officers and significant stockholders                of                the Company. The primary**                |
| **functions/services                performed by Messrs. Emmett and Furla are as                follows:**                                                            |   |   |
| **a)                Seek creative material, acquire rights and arrange for writing the                screenplay**                                                    |   |   |
| **b)                Negotiate talent for the project (I.e. development, actors, directors                and                writers) and assist with**                |
| **pre-production,                post-production and packaging.**                                                                                                     |   |   |   |   |
| **c)                Negotiate distribution agreements, both domestic and                foreign.**                                                                    |   |   |   |
| **d)                Arrange for the sale of film rights.**                                                                                                            |   |   |   |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |
| **(3)                This motion picture has been in release for greater than two years                and                FMLY does not expect it to yield**          |
| **significant                additional revenue.**                                                                                                                    |   |   |   |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |
| **(3-A)                This motion picture has been in release for greater than two years                and is                in its second cycle of distribution.** |
| **FMLY                anticipates that additional revenues from new distribution                agreements.**                                                         |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |
| **(4)                There is no assurance that any motion picture that has not yet been                released, will be released, that a change**                   |
| **in                the scheduled release dates of any such films will not occur, or                that if                such motion picture is released,**         |
| **that                it will be successful. FMLY has various additional feature films                under                development and there can be no**          |
| **assurance                that any project under development will be produced, or that if produced,                that it will be released**                        |
| **or                successful.**                                                                                                                                     |   |   |   |   |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |
| **(5)                FMLY conducts business with a limited number of customers and loss                of any                one of those customers could**           |
| **have                a negative impact on its results of operations.**                                                                                               |   |   |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |

**News      Releases**

----

----

----

----

----

----

----

----

----

**ITEM      2.**
**Properties      **

**ITEM      3.**
**Legal      Proceedings**

**ITEM      4.**
**      Submission of Matters to a Vote of Security Holders **

**None**

----

**ITEM      5.**
**Market      for Common Equity and Related Stockholder Matters**

|                                                  | HIGH   | LOW    |
|-------------------------------------------------------|--------|--------|
|                                        | BID    | BID    |
|                                                  |   |   |
| **Fiscal                2003**** **              |   |   |
| September                30, 2002                     | $0.54  | $0.35  |
| December                31, 2002       | $0.50  | $0.23  |
| March                31, 2003     | $0.27  | $0.07  |
| June                30, 2003           | $0.18  | $0.09  |
|                                                  |   |   |
| **Fiscal                2004**                   |   |   |
| September                30, 2003           | $0.18  | $0.09  |
| December                31, 2003            | $0.11  | $0.09  |
| March                31, 2004          | $0.15  | $0.09  |
| June                30, 2004                          | $0.12  | $0.09  |
|                                                  |   |   |
| **Fiscal                2005**                   |   |   |
| September                30, 2004           | $0.09  | $0.06  |
| December                31, 2004            | $0.09  | $0.07  |
| March                31, 2005                         | $0.09  | $0.07  |
| June                30, 2005                          |   |   |
|                                                  |   |   |
| **Fiscal                2006**                        |   |   |
| September                30, 2005                     | $.05   | $.03   |

----

----

----

**ITEM      6.**
**Managements      Discussion and Analysis of Financial Condition and Results of      Operations**

**GENERAL**

**Critical      Accounting Policies and Estimates **

| 1.   | We              recognize revenue from the development, production, and production              services earned under the criteria established by SOP 00-2 as follows: |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Producers              Fees - Producer fees are recognized upon receipt of the fees and delivery              of the related services. If upon receipt of the fees all services have              not              been provided, the fees are deferred and recognized as the services              are              performed; |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | Royalties              - Royalty and profit participation are recognized when the amounts              are              known and the receipt of the royalties is reasonably assured. Accordingly,              recognition generally occurs upon receipt (usually quarterly or              semi-annually); and |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.   | Producer              Development and Production Service Fees** **-              As these services are provided, these fees are invoiced by FMLY to              the              third party financiers and producers and are recognized when the amount              has been determined and receipt is reasonably assured. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Plan      of Operation**

----

**RESULTS      OF OPERATIONS**

----

----

| **Year                Ended** |                                                 |               |
|-------------------------------|------------------------------------------------------|--------------------|
| **June                30,**   |                                                 | **Amount**         |
|                          |                                                 |               |
| 2005                          |                                                 | $                - |
| 2006                          |                                                 | -                  |
| 2007                          | November                2006 - Convertible Notes Due | 2,000,000          |
|                          |                                                 |               |
|                          |                                                 | $2,000,000         |

|                                    | **March                31,**     | **June                30,** |
|-----------------------------------------|----------------------------------|-----------------------------|
|                                    | **  2005  ** | **  2004 **  |
|                                    |                             |                        |
| Accounts                payable         | $                88,098          | $                61,493     |
| Accrued                film costs       | -                                | 81,400                      |
| Accrued                interest payable | 109,875                          | -            |
|                                    |                             |                        |
|                                    | $                198,603         | $                142,893    |

| **Year                Ended** |   |                     |
|-------------------------------|--------|--------------------------|
| **June                30,**   |   | **Amount**               |
|                          |   |                     |
| 2005                          |   | $                74,074  |
| 2006                          |   | 44,077                   |
|                          |   |                     |
|                          |   | $                118,151 |

|                                                       |   | **2006**                |
|------------------------------------------------------------|--------|-------------------------|
|                                                       |   | **Estimate**            |
|                                                       |   |                    |
| Salaries,                consultants and benefits          |   | $                40,500 |
| Rent                                                       |   | 6,054                   |
| Parking                                                    |   | 1,520                   |
| Equipment                rental                            |   | 4,000                   |
| Telephone                and communications                |   | 1,890                   |
| Directors,                officers and corporate insurance |   | 5,400                   |
| Accounting                and auditing                     |   | 5,000                   |
|                                                       |   |                    |
|                                                       |   | $                64,364 |

----

**Estimated      Future Cash Requirements**

| $950,000.00   | General                Fund |
|---------------|-----------------------------|
| $1,300,000.00 | Tenant                      |
| $1,799,719.00 | Borderland                  |
| $250,000.00   | Wickerman                   |
| $130,000.00   | Room                Service |
|          |                        |
| $4,429,719.00 | Salinas                     |

** **
**.**

**,      **

----

**Subsequent      Events:**

----

**ITEM      7.**
**Financial      Statements**

**ITEM      8.**
**Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure**

**ITEM      8A.**
**Controls      and Procedures **

**ITEM      8B.**

----

**PART      III**

**ITEM      9.**
**Directors,      Executive Officers, Promoters and Control Persons; Compliance with Section      16(a)      of the Exchange Act**

----

**Code      of Ethics for Chief Executive Officer and Senior Financial      Officers**

**ITEM      10. EXECUTIVE COMPENSATION**

|                                                                                                         |         | Annual                Compensation   |         | Long                Term Compensation Awards   |
|--------------------------------------------------------------------------------------------------------------|--------------|-------------------------------------------|--------------|-----------------------------------------------------|
| Name                andPrincipal                Position                                                     |         | Year                                      |         | Salary(1)                                      |   | Bonus                [Missing |   | OtherAnnualCompensation(2)  |   | RestrictedStockAwards |   | SecuritiesUnderlyingOptions |   | All                OtherCompensation |
| George                FurlaCo-Chairman,Chief                Executive Officer and President                  |         | 200520042003                              |         |                                                | 000 |   |   | 000 |   | $413,758$141,746                $100,000 |   |   | 000 |   | 000 |   |   | **$                0****$354,166****0** |
|  Randall                EmmettCo-ChairmanChief                Operating Officer and Assistant Secretary |    |  200520042003                        |    |                                                |  000 |   |     |  000                  |   |  $559,609$180,404$136,000 |   |   |  000 |   |  000 |   |   |  **$                0****$354,166****0** |
|  Stanley                TepperChief                Financial Officer                                    |    |  200520042003                        |    |                                                |  00                0 |   |   |  000 |   |  000 |   |   |  000 |   |  000 |   |   |  **$35,000****$12,500****0** |

**Option      Grants in Last Fiscal Year **

|                          |   | **Individual                Grants**                                                                                                            |   |                   |   |   |
|-------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------|
|                          |   | **Potential                Realizable Value at Assumed Annual Rates of Stock Price Appreciation                for                Option Term** |
|                          |   | **Number                of Securities Underlying Options Granted**                                                                              |   |                   |   |   |   |   |
|                          |   | **%                of Total Options Granted to Employees in 2005**                                                                              |   |                   |   |   |
|                          |   | **Exercise                or Base Price****($/Sh)**                                                                                             |   | **Expiration****Date** |
|                          |   | **5%**                                                                                                                                          |   | **10%**                |
| George                Furla   |   | 0                                                                                                                                               |   | 0                      |   |   |   |   |   |   |   |   |   |   |
| Randall                Emmett |   | 0                                                                                                                                               |   | 0                      |   |   |   |   |   |   |   |   |   |   |
| Stanley                Tepper |   | 0                                                                                                                                               |   | 0                      |   |   |   |   |   |   |   |   |   |   |

----

**2005      Option Exercises and Year-End Option Holdings **

**Aggregate      Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values**

|                          |            |                                           |              |                  |            | **Number                of Unexercised Options Held at June 30, 2005** |              | **Value                of Unexercised****In-the-Money                Options at June 30, 2005****(1)**** ** |
|-------------------------------|-----------------|------------------------------------------------|-------------------|-----------------------|-----------------|-----------------------------------------------------------------------------|-------------------|------------------------------------------------------------------------------------------------------------------|
| **Name**                      |            | **Shares                Acquired on Exercise** |              | **Value****Realized** |
|                          | **Exercisable** |                                           | **Unexercisable** |                  | **Exercisable** |                                                                        | **Unexercisable** |
| George                Furla   |            |                                           |              |                  |            |                                                                        |              |                                                                                                             |   |   |   |   |   |   |
| Randall                Emmett |            |                                           |              |                  |            |                                                                        |              |                                                                                                             |   |   |   |   |   |   |
| Stanley                Tepper |            |                                           |              |                  |            |                                                                        |              |                                                                                                             |   |   |   |   |   |   |

**ITEM      11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND      MANAGEMENT**

----

**ITEM      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

**ITEM      13. EXHIBITS AND REPORTS ON FORM 8-K**

| 31.1   | Certification              of the Chief Executive Officer pursuant to Rule              13a-14(a) |
|------------------|---------------------------------------------------------------------------------------------------|

| 31.2   | Certification              of the Chief Financial Officer pursuant to Rule              13a-14(a) |
|------------------|---------------------------------------------------------------------------------------------------|

| 32.1   | Certification              of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350 |
|------------------|----------------------------------------------------------------------------------------|

| 32.2   | Certification              of the Chief Financial Officer pursuant to 18              U.S.C.ss.1350 |
|------------------|-----------------------------------------------------------------------------------------------------|

| (b)       | Reports                on Form 8-K                                               |
|-----------|----------------------------------------------------------------------------------|
| **Date**  | **Subject**                                                                      |
| 12/1/2004 | Received                funding with gross proceeds of                $2,000,000 |

----

**ITEM      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

|                              | **For                the Year Ended June 30,** |
|-----------------------------------|------------------------------------------------|
|                              | **2005**                                       | **2004** |
| Audit                Fees         | $55,000                                        | $30,000 |
| Audit-Related                Fees | $-                                             | $- |
| Tax                Fees           | $6,900                                         | $3,200 |
| All                Other Fees     | $-                                             | $- |
| Total                Fees         | $61,900                                        | $33,200 |

**Audit      committee’s pre-approval policies and procedures**

**Percentage      of hours expended**

----

**Signatures**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**CONSOLIDATED      FINANCIAL STATEMENTS**

**WITH      REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**for      the years ended June 30, 2005 and 2004**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**TABLE      OF CONTENTS**

**--______________________________________________________________________________________**

** **
**Page(s)**

----

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

----

| **FAMILY                ROOM ENTERTAINMENT CORPORATION**                                                             |
|----------------------------------------------------------------------------------------------------------------------|
| **BALANCE                SHEETS**                                                                                    |
| **June                30, 2005 and 2004**                                                                            |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **ASSETS**                                                                                                           |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   | **2005** |   | **2004** |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents                                                                             |   | $ | 736,870 |   | $ | 289,849 |   |
| Restricted                cash                                                                                       |   |   | 2,544,345 |   |   | - |   |
| Accounts                receivable, net                                                                              |   |   | 366,704 |   |   | 119,498 |   |
| Film                costs, net                                                                                       |   |   | 3,378,185 |   |   | 794,873 |   |
| Property                and equipment, net                                                                           |   |   | 56,540 |   |   | 38,958 |   |
| Prepaid                expenses and other assets                                                                     |   |   | 44,936 |   |   | 175 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   | Total                assets |   | $ | 7,127,580 |   | $ | 1,243,353 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                                              |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Notes                payable under film participation agreements                                                     |   | $ | 4,929,719 |   | $ | - |   |
| Notes                payable and convertible debt                                                                    |   |   | 1,283,471 |   |   | 180,653 |   |
| Accounts                payable and accrued liabilities                                                              |   |   | 198,972 |   |   | 142,893 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   | Total                liabilities |   |   | 6,412,162 |   |   | 323,545 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commitments                and contingencies                                                                         |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stockholders'                equity                                                                                  |   |   |   |   |   |   |   |
|                                                                                                                 | Common                stock: $0.01 par value, 200,000,000 shares |   |   |   |   |   |   |   |
|                                                                                                                 |   | authorized,                89,537,254 and 87,037,254 shares |   |   |   |   |   |   |   |
|                                                                                                                 |   | issued                and outstanding at June 30, 2005 and |   |   |   |   |   |   |   |
|                                                                                                                 |   | 2004,                respectively |   |   | 895,373 |   |   | 870,373 |   |
|                                                                                                                 | Additional                paid-in capital |   |   | 18,243,742 |   |   | 17,444,454 |   |
|                                                                                                                 | Accumulated                deficit |   |   | (18,423,697 | ) |   | (17,395,019 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   | Total                stockholders' equity |   |   | 715,418 |   |   | 919,808 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   | Total                liabilities and stockholders' equity |   | $ | 7,127,580 |   | $ | 1,243,353 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The                accompanying notes are an integral part of these consolidated financial                statements |

----

| **FAMILY                ROOM ENTERTAINMENT CORPORATION**                                                             |
|----------------------------------------------------------------------------------------------------------------------|
| **STATEMENTS                OF OPERATIONS**                                                                          |
| **For                The Years Ended June 30, 2005 and 2004**                                                        |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   | **2005** |   | **2004** |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Film                revenue                                                                                          |   | $ | 2,330,534 |   | $ | 745,435 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                cost - amortization of film costs                                                           |   |   | 1,669,809 |   |   | 1,131,338 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   | Gross                margin |   |   | **660,725** |   |   | (385,904 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                general and administrative expenses                                                          |   |   | 1,371,740 |   |   | 3,115,367 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   | Loss                from operations |   |   | (711,015 | ) |   | (3,501,271 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                income and (expense)                                                                            |   |   |   |   |   |   |   |
|                                                                                                                 | Interest                income |   |   | 5,764 |   |   | 22 |   |
|                                                                                                                 | Interest                expense |   |   | (323,427 | ) |   | (831,118 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   | Total                other income and expense, net |   |   | (317,663 | ) |   | (831,096 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | Net                loss |   | $ | (1,028,678 | ) | $ | (4,332,366 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                average number of common shares                                                              |   |   |   |   |   |   |   |
|                                                                                                                 | outstanding                - basic and diluted |   |   | 88,626,295 |   |   | 43,982,613 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss per common share - basic and diluted                                                         |   | $ | (0.01 | ) | $ | (0.10 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The                accompanying notes are an integral part of these consolidated financial                statements |

----

| **FAMILY                ROOM ENTERTAINMENT CORPORATION**                                                             |
|----------------------------------------------------------------------------------------------------------------------|
| **STATEMENT                OF CHANGES IN STOCKHOLDERS' EQUITY**                                                      |
| **For                the Years Ended June 30, 2005 and 2004**                                                        |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   | **Additional** |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   | **Common                Stock** |   | **Paid-In** |   | **Deferred** |   | **Accumulated** |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   | **Shares** |   | **Amount** |   | **Capital** |   | **Compensation** |   | **Deficit** |   | **Tota**l |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                at June 30, 2003                                                                              | 24,187,536 |   | $ | 241,875 |   | $ | 12,707,710 |   | $ | (5,437 | ) | $ | (13,062,653 | ) | $ | (118,505 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                stock issued for                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | cash |   |   |   |   | 15,450,544 |   |   | 154,505 |   |   | 890,140 |   |   | - |   |   | - |   |   | 1,044,645 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization                of deferred                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | compensation |   |   | - |   |   | - |   |   | - |   |   | 5,437 |   |   | - |   |   | 5,437 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Value                of beneficial                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | conversion                feature and |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | warrants                on convertible |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | debt |   |   |   |   | - |   |   | - |   |   | 679,856 |   |   | - |   |   | - |   |   | 679,856 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                stock issued for                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | legal                and consulting |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | services |   |   | 9,443,142 |   |   | 94431 |   |   | 878,395 |   |   | - |   |   | - |   |   | 972,826 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                stock issued upon                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | conversion                of debt |   | 23,122,698 |   |   | 231,228 |   |   | 1,175,854 |   |   |   |   |   |   |   |   | 1,407,082 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                stock issued for                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | employee                compensation | 14,833,334 |   |   | 148,334 |   |   | 1,1112,499 |   |   | - |   |   | - |   |   | 1,260,833 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss                                                                                              |   |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (4,332,366 | ) |   | (4,332,366 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                at June 30, 2004                                                                              | 87,037,254 |   |   | 87,037 |   |   | 18,227,790 |   |   | - |   |   | (17,395,019 | ) |   | 919,808 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Value                of beneficial                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | conversion                feature and |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | warrants                on convertible |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | debt |   |   |   |   | - |   |   | - |   |   | 634,288 |   |   | - |   |   | - |   |   | 634,288 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                stock issued for                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 | consulting                services |   | 2,500,000 |   |   | 2,500 |   |   | 187,500 |   |   | - |   |   | - |   |   | 190,000 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss                                                                                              |   |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (1,028,677 | ) |   | (1,028,677 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                at June 30, 2005                                                                              | 89,537,254 |   | $ | 89,537 |   | $ | 19,049,578 |   | $ | - |   | $ | (18,423,697 | ) | $ | 715,418 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The                accompanying notes are an integral part of these consolidated financial                statements |

| **FAMILY                ROOM ENTERTAINMENT CORPORATION**                                                             |
|----------------------------------------------------------------------------------------------------------------------|
| **STATEMENTS                OF CASH FLOWS**                                                                          |
| **For                The Years Ended June 30, 2005 and 2004**                                                        |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   | **2005** |   | **2004** |   |
| Cash                Flows from operating activities:                                                                 |   |   |   |   |   |   |   |
|                                                                                                                 | Net                loss |   | $ | (1,028,678 | ) | $ | (4,332,366 | ) |
|                                                                                                                 | Adjustment                to reconcile net loss to net cash |   |   |   |   |   |   |   |
|                                                                                                                 |   | used                in operating activities: |   |   |   |   |   |   |   |
|                                                                                                                 |   |   | Depreciation                expense |   |   | 27,013 |   |   | 24,000 |   |
|                                                                                                                 |   |   | Amortization                of film costs |   |   | 1,669,809 |   |   | 1,131,338 |   |
|                                                                                                                 |   |   | Stock-based                compensation |   |   | - |   |   | 2,239,096 |   |
|                                                                                                                 |   |   | Common                stock issued for services |   |   | 190,000 |   |   | - |   |
|                                                                                                                 |   |   | Common                stock issued for accrued interest |   |   | - |   |   | 31,082 |   |
|                                                                                                                 |   |   | Amortization                of loan costs |   |   | 207,107 |   |   | 772,793 |   |
|                                                                                                                 |   | Increase/decrease |   |   |   |   |   |   |   |
|                                                                                                                 |   |   | Accounts                receivable |   |   | (247,206 | ) |   | (69,498 | ) |
|                                                                                                                 |   |   | Film                costs |   |   | (4,253,120 | ) |   | (881,876 | ) |
|                                                                                                                 |   |   | Other                assets |   |   | (44,761 | ) |   | 37,976 |   |
|                                                                                                                 |   |   | Accounts                payable and accrued liabilities |   |   | 56,079 |   |   | (55,288 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   | Net                cash used by investing activities |   |   | (3,423,757 | ) |   | (1,102,743 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                flows from investing activities:                                                                 |   |   |   |   |   |   |   |
|                                                                                                                 | Increase                in restricted cash |   |   | (2,544,345 | ) |   | - |   |
|                                                                                                                 | Purchase                of property and equipment |   |   | (44,595 | ) |   | (18,531 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   | Net                cash used by investing activities |   |   | (2,588,940 | ) |   | (18,531 | ) |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                flows from financing activities:                                                                 |   |   |   |   |   |   |   |
|                                                                                                                 | Proceeds                from notes payable |   |   | 4,929,719 |   |   | - |   |
|                                                                                                                 | Payments                on notes payable |   |   | (180,653 | ) |   | (115,372 | ) |
|                                                                                                                 | Payments                on notes payable to stockholders |   |   | - |   |   | (323,562 | ) |
|                                                                                                                 | Proceeds                from convertible debentures |   |   | 2,000,000 |   |   | 711,000 |   |
|                                                                                                                 | Payment                of debt issue costs on convertible debentures |   |   | (289,348 | ) |   | - |   |
|                                                                                                                 | Proceeds                from sale of common stock |   |   | - |   |   | 1,044,645 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |   | Net                cash provided by financing activities |   |   | 6,459,718 |   |   | 1,316,711 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Increase                in cash and cash equivalents                                                                 |   |   | 447,021 |   |   | 195,437 |   |
|                                                                                                                 |   |   |   |   |   |   |   |
| Cash                and cash equivalents at beginning of year                                                        |   |   | 289,849 |   |   | 94,412 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents at end of year                                                              |   | $ | 736,870 |   | $ | 289,849 |   |
|                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The                accompanying notes are an integral part of these consolidated financial                statements |

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**1.**
**General**

**2.**
**Summary      of Significant Accounting Policies**

**Principles      of Consolidation**

**Unclassified      Consolidated Balance Sheet**

**Accounting      Estimates**

**Revenue      Recognition**

| •   | FMLY                has a valid sale or licensing agreement in                place. |
|---------------------|--------------------------------------------------------------------------------------|

| •   | The                motion picture is complete and in accordance with the agreement with                the                customer. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| •   | The                motion picture has been delivered or is                deliverable. |
|---------------------|----------------------------------------------------------------------------------------|

| •   | The                license period has begun. |
|---------------------|----------------------------------------------|

| •   | The                revenue is fixed or determinable and collection is reasonably                assured. |
|---------------------|----------------------------------------------------------------------------------------------------------|

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**2.**
**Summary      of Significant Accounting Policies, continued**

**Revenue      Recognition, continued**

| **1.  ** | **Producers                Fees**                -                Producer fees are recognized upon receipt of the fees and delivery                of the                related services. If upon receipt of the fees all services have not                been                provided, the fees are deferred and recognized as the services are                performed; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **2.  ** | **Royalties**                -                Royalty and profit participation are recognized when the amounts                are known                and the receipt of the royalties is reasonably assured. Accordingly,                recognition generally occurs upon receipt (usually quarterly or                semi-annually); and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.  ** | **Producer                Development and Production Service Fees and Film Distribution Fees**-                As these services are provided, these fees are invoiced by FMLY to                the                third party financiers and producers and are recognized when the                amount                has been determined and receipt is reasonably assured. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Film      Costs**

**Exploitation      Costs**

**Participation      Costs**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**2.**
**Summary      of Significant Accounting Policies, continued**

**Cash      Equivalents**

**Property      and Equipment**

**Income      Taxes**

**Interest**

**Net      Loss Per Common Share**

**Stock-Based      Compensation**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**2.**
**Summary      of Significant Accounting Policies, continued **

**Comprehensive      Income**

**Fair      Value of Financial Instruments**

**Concentration      of Credit Risk**

**Recently      Issued Accounting Pronouncements**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**2.**
**Summary      of Significant Accounting Policies, continued **

**Recently      Issued Accounting Pronouncements, continued**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**2.**
**Summary      of Significant Accounting Policies, continued **

**Recently      Issued Accounting Pronouncements, continued**

**3.**
**Restricted      Cash**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

| **4.** | **Accounts                Receivable** |
|--------|----------------------------------------|

|   |   |   |                                               |   |   |   |   |   |   |    | **2005** |    | **2004** |   |
|--------|--------|--------|----------------------------------------------------|--------|--------|--------|--------|--------|--------|---------|----------|---------|----------|--------|
|   |   |   |                                               |   |   |   |   |   |   |    |     |    |     |   |   |   |
|   |   |   | Accrued                receivables - producer fees |   |   |   |   |   | $      | 325,000 |     | $       | 106,998  |   |
|   |   |   | Accrued                royalties                   |   |   |   |   |   |   |    |     | 41,704  |     |   | 12,500 |   |
|   |   |   |                                               |   |   |   |   |   |   |    |     |    |     |   |   |   |
|   |   |   | Total                                              |   |   |   |   |   |   |    | $        | 366,704 |     | $      | 119,498 |   |

|   | At                June 30, 2005 and 2004, one customer accounted for $325,000 and $106,998                of accounts receivable. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|

| **5.** | **Film                Costs and Revenue** |
|--------|-------------------------------------------|

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

| **5.** | **Film                Costs and Revenue,                continued** |
|--------|---------------------------------------------------------------------|

|   |                                             |                                       |   |   |         |   |           |      |                        |   | **Development** |    |   |      |      |
|--------|--------------------------------------------------|--------------------------------------------|--------|--------|--------------|--------|----------------|-----------|-----------------------------|--------|-----------------|---------|--------|-----------|-----------|
|   |                                             |                                       |   |   |         |   | **In**         |      | **and                Pre-** |   |            |    |
|   |                                             |                                       |   |   | **Released** |   | **Production** |      | **Production**              |   | **Total**       |    |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Net                film cost balance at June 30, |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | 2003                                       |   | $      | 772,163      |   | $              | 174,083   |                        | $      | 98,090          |    | $      | 1,044,336 |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Production                costs incurred during  |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | 2004                                       |   |   | 27,990       |   |           | 182,220   |                        |   | 671,666         |    |   | 881,876   |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Transfers                of film costs between   |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | categories                in 2004          |   |   | (76,312      | )      |           | -         |                        |   | 76,312          |    |   | -         |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Total                film costs incurred and     |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | paid                by FMLY during         |   |   |         |   |           |      |                        |   |            |    |   |      |      |
|   |                                             | 2004                                       |   |   | (48,322      | )      |           | 182,220   |                        |   | 747,978         |    |   | 881,876   |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Net                film cost balance before      |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | 2004                amortization and write |   |   |         |   |           |      |                        |   |            |    |   |      |      |
|   |                                             | offs                                       |   |   | 723,841      |   |           | 356,303   |                        |   | 846,068         |    |   | 1,926,212 |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Less                film cost amortization and   |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | write-offs                during 2004      |   |   | 513,342      |   |           | 198,774   |                        |   | 419,222         |    |   | 1,131,338 |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Net                film cost balance at June 30, |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | 2004                                       |   |   | 210,499      |   |           | 157,529   |                        |   | 426,846         |    |   | 794,874   |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   | Production                costs incurred during  |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | 2005                                       |   |   | 77,607       |   |           | 3,180,156 |                        |   | 895,357         |    |   | 4,253,120 |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Transfers                of film costs between   |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | categories                in 2005          |   |   | -            |   |           | 271,460   |                        |   | (271,460        | )       |   | -         |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Total                film costs incurred and     |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | paid                by FMLY during         |   |   |         |   |           |      |                        |   |            |    |   |      |      |
|   |                                             | 2005                                       |   |   | 77,607       |   |           | 3,551,616 |                        |   | 623,897         |    |   | 4,253,120 |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Net                film cost balance before      |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | 2005                amortization and write |   |   |         |   |           |      |                        |   |            |    |   |      |      |
|   |                                             | offs                                       |   |   | 288,106      |   |           | 3,709,146 |                        |   | 1,050,742       |    |   | 5,047,994 |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Less                film cost amortization and   |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             | write-offs                during 2005      |   |   | 228,106      |   |           | 1,045,439 |                        |   | 396,264         |    |   | 1,669,809 |      |
|   |                                             |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |      |   |
|   | Net                film cost balance at June 30, |                                       |   |   |         |   |           |      |                        |   |            |    |   |      |
|   |                                             |                                       | 2005   |   | $            | 60,000 |           | $         | 2,663,707                   |   | $               | 654,478 |   | $         | 3,378,185 |   |

**F-15**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**____________________________________________________________________________________**

**5.**
**Film      Costs and Revenue, continued **

|   |                                                                         |                                               |                               |   |   |   |   |   |   |   | **2005**                     |      | **2004** |                     |
|--------|------------------------------------------------------------------------------|----------------------------------------------------|------------------------------------|--------|--------|--------|--------|--------|--------|--------|------------------------------|-----------|----------|--------------------------|
|   |                                                                         |                                               |                               |   |   |   |   |   |   |   |                         |      |     |                     |   |   |
|   | **Released                Projects - Amortization**                          |                                               |                               |   |   |   |   |   |   |   |                         |      |     |                     |
|   |                                                                         | Amnityville                Horror After 25 Years   |                               |   |   |   |   |   |   | $      | 311,827                      |      | $        | 116,397                - |   |
|   |                                                                         | After                Sex                           |                               |   |   |   |   |   |   |   | 40,413                       |      |     | -                        |   |
|   |                                                                         | Good                Advice                         |                               |   |   |   |   |   |   |   | 98,926                       |      |     | 228,258                  |   |
|   |                                                                         | Held                for Ransom                     |                               |   |   |   |   |   |   |   | 41,020                41,020 |      |     | 106,896                  |   |
|   |                                                                         | Speedway                Junkie                     |                               |   |   |   |   |   |   |   | 9,641                9,641   |      |     | 115,971                  |   |
|   |                                                                         | Submerged                                          |                               |   |   |   |   |   |   |   | 291,741                      |      |     | -                        |   |
|   |                                                                         |                                               |                               |   |   |   |   |   |   |   |                         |      |     |                     |   |   |
|   | **Projects                in Development, In-Production, or Pre-Production** |                                               |                               |   |   |   |   |   |   |
|   |                                                                         | 16                Blocks                           |                               |   |   |   |   |   |   |   | 270,981                      |      |     | -                        |   |
|   |                                                                         | Control                                            |                               |   |   |   |   |   |   |   | -                            |      |     | 121,390                  |   |
|   |                                                                         | Edison                                             |                               |   |   |   |   |   |   |   | -                            |      |     | 177,002                  |   |
|   |                                                                         | Lonely                Hearts                       |                               |   |   |   |   |   |   |   | 62,941                       |      |     |                     |   |
|   |                                                                         | Mercenary                Seagal Project (Untitled) |                               |   |   |   |   |   |   |   | 117,271                      |      |     | -                        |   |
|   |                                                                         | Today                We Die                        |                               |   |   |   |   |   |   |   | 188,634                      |      |     | -                        |   |
|   |                                                                         | Windfall                                           |                               |   |   |   |   |   |   |   | -                            |      |     | 49,807                   |   |
|   |                                                                         | Total                of other individual           |                               |   |   |   |   |   |   |   |                         |      |     |                     |   |
|   |                                                                         |                                               | projects                with costs |   |   |   |   |   |   |   |                         |      |     |                     |   |   |
|   |                                                                         |                                               | less                than $40,000   |   |   |   |   |   |   |   |                         | 236,414   |     |                     | 215,617 |   |
|   |                                                                         |                                               |                               |   |   |   |   |   |   |   |                         |      |     |                     |   |   |
|   |                                                                         |                                               | Total                all projects  |   |   |   |   |   |   |   | $                            | 1,669,809 |     | $                        | 1,131,338 |   |

|   | Following                is an analysis of the events and circumstances that lead to the                amortization, write-down or write-off of individually significant                projects                (projects with capitalized costs of at least $40,000) in 2005 and                2004: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | “Amnityville                Horror After 25 Years” - In early 2004 FMLY developed this film project;                however, management decided not to go forward with it and wrote-off                the                entire project during the development stage. Subsequent to the write-off,                opportunities arose for additional development and sale of the project.                Accordingly, FMLY completed the development of the project and the                project                was sold in 2005. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**5.**
**Film      Costs and Revenue, continued **

|   | “Speedway                Junkie” - FMLY wrote this project off in 2004 when management determined                that no additional revenues were likely from this                project. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Submerged”                went into production in fiscal 2005 and FMLY received a producer                fee (see                above) and amortized its costs for year-end June 30,                2005. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | “Today                We Die” - into production in fiscal 2005 and FMLY received a producer fee                (see above) and amortized its costs for year-end June 30,                2005. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | “16                Blocks” - into production in fiscal 2005 and FMLY received a producer fee                (see above) and amortized its costs for year-end June 30,                2005. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | “Control”                and “Edison” - In 2004 FMLY derived producer’s fees from these projects                and all costs associated with the projects were amortized. These                projects                were in development/post production stage at the time they were taken                over                by producer or third party financier. No Costs related to these projects                are reflected in FMLY’s financial statements at June 30,                2004. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**5.**
**Film      Costs and Revenue, continued **

|   |                                                           |   |   |   |   |   |   |   |   |   | **2005** |   | **2004** |   |
|--------|----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------|--------|----------|--------|
|   |                                                           |   |   |   |   |   |   |   |   |   |     |   |     |   |   |   |
|   | The                Tennent                                     |   |   |   |   |   |   |   |   | 37     | %        |   | -        | %      |
|   | Borderland                                                     |   |   |   |   |   |   |   |   | 22     |     |   | -        |   |
|   | White                Air                                       |   |   |   |   |   |   |   |   | 7      |     |   | -        |   |
|   | Wickerman                                                      |   |   |   |   |   |   |   |   | 7      |     |   | -        |   |
|   | Submerged                                                      |   |   |   |   |   |   |   |   | -      |     |   | 23       |   |
|   | Shottas                                                        |   |   |   |   |   |   |   |   | -      |     |   | 19       |   |
|   | Good                Advice                                     |   |   |   |   |   |   |   |   | -      |     |   | 13       |   |
|   | After                Sex                                       |   |   |   |   |   |   |   |   | -      |     |   | 7        |   |
|   | Held                for Ransom                                 |   |   |   |   |   |   |   |   | -      |     |   | 7        |   |
|   | 88                Minutes                                      |   |   |   |   |   |   |   |   | 5      |     |   | 5        |   |
|   | Total                of other individual projects less than 5% |   |   |   |   |   | 22     |   |   | 26     |     |
|   |                                                           |   |   |   |   |   |   |   |   |   |     |   |     |   |   |   |
|   |                                                           | Total  |   |   |   |   |   |   |   |   | 100      | %      |     | 100    | % |
|   |                                                           |   |   |   |   |   |   |   |   |   |     |   |     |   |   |   |

|                                           |                                                       |                                              |   |   |   |   |    |   |   |                      | **2005**  |    | **2004**                            |    |
|------------------------------------------------|------------------------------------------------------------|---------------------------------------------------|--------|--------|--------|--------|---------|--------|--------|---------------------------|-----------|---------|-------------------------------------|---------|
| **Producer                Fees**               |                                                       |                                              |   |   |   |   |    |   |   |                      |      |    |                                |
|                                           | 16                Blocks                                   |                                              |   |   |   |   |    |   | $      | 625,000                   |      | $       | -                                   |    |
|                                           | Amnityville                Horror After 25 Years           |                                              |   |   |   |   |    |   |   | 500,000                   |      |    | -                                   |    |
|                                           | Submerged                                                  |                                              |   |   |   |   |    |   |   | 300,000                   |      |    | -                                   |    |
|                                           | Mercenary                Seagal Project                    |                                              |   |   |   |   |    |   |   | 300,000                   |      |    | -                                   |    |
|                                           | Today                We Die                                |                                              |   |   |   |   |    |   |   | 200,000                   |      |    | -                                   |    |
|                                           | Lonely                Hearts                               |                                              |   |   |   |   |    |   |   | 100,000                   |      |    | -                                   |    |
|                                           | The                Tenant                                  |                                              |   |   |   |   |    |   |   | 12,000                    |      |    | -                                   |    |
|                                           | Control                                                    |                                              |   |   |   |   |    |   |   | -                         |      |    | 117,500                             |    |
|                                           | Edison                                                     |                                              |   |   |   |   |    |   |   | -                         |      |    | 250,000                             |    |
|                                           | Out                for a Kill                              |                                              |   |   |   |   |    |   |   | -                         |      |    | -                                   |    |
|                                           | Belly                of the Beast                          |                                              |   |   |   |   |    |   |   | -                         |      |    | -                                   |    |
|                                           | Wonderland                                                 |                                              |   |   |   |   |    |   |   | -                         |      |    |                    - |    |
|                                           |                                                       |                                              |   |   |   |   |    |   |   |                      |      |    |                                |    |   |   |
|                                           |                                                       | Total                producer fees / film revenue |   |   |   |   |    |   |   |                      | 2,037,000 |    |                                | 367,500 |   |
|                                           |                                                       |                                              |   |   |   |   |    |   |   |                      |      |    |                                |    |   |   |
| **Royalties                and Other Revenue** |                                                       |                                              |   |   |   |   |    |   |   |                      |      |    |                                |
|                                           | Royalties                                                  |                                              |   |   |   |   |    |   |   | 28,034                    |      |    | 11,945                              |    |
|                                           | Distribution                revenue                        |                                              |   |   |   |   |    |   |   | 24,500                    |      |    | 136,979                             |    |
|                                           | Film                production service fees and consulting |                                              |   |   |   |   | 241,000 |   |   |    229,011 |      |
|                                           |                                                       |                                              |   |   |   |   |    |   |   |                      |      |    |                                |    |   |   |
|                                           |                                                       |                                              |   |   |   |   |    |   |   |                      |      | 293,534 |                                |    |    377,935 |   |
|                                           |                                                       |                                              |   |   |   |   |    |   |   |                      |      |    |                                |    |   |   |
|                                           | Total                revenue                               |                                              |   |   |   |   |    |   | $      | 2,330,534                 |      | $       | 745,435                             |    |

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

| **6.** | **Property                and Equipment** |
|--------|-------------------------------------------|

|   |   |   |                                                          |   |   |   |   |   | **Life**               |   | **2005** |    | **2004** |   |
|--------|--------|--------|---------------------------------------------------------------|--------|--------|--------|--------|--------|------------------------|--------|----------|---------|----------|--------|
|   |   |   |                                                          |   |   |   |   |   |                   |   |     |    |     |   |   |   |
|   |   |   | Office                furniture and equipment                 |   |   |   |   |   | 7                years |   | $        | 45,793  |     | $      | 11,223 |   |
|   |   |   | Computer                equipment                             |   |   |   |   |   | 5                years |   |     | 55,413  |     |   | 51,743 |   |
|   |   |   | Software                                                      |   |   |   |   |   | 3                years |   |     | 79,409  |     |   | 74,054 |   |
|   |   |   |                                                          |   |   |   |   |   |                   |   |     |    |     |   |   |   |
|   |   |   | Total                                                         |   |   |   |   |   |                   |   |     | 180,615 |     |   | 137,020 |   |
|   |   |   |                                                          |   |   |   |   |   |                   |   |     |    |     |   |   |   |
|   |   |   | Less                accumulated depreciation and amortization |   |   |   |   |   | 124,075                |   |     | 98,062  |     |
|   |   |   |                                                          |   |   |   |   |   |                   |   |     |    |     |   |   |   |
|   |   |   |                                                          |   |   |   |   |   |                   |   | $        | 56,540  |     | $      | 38,958 |   |

| **7.** | **Notes                Payable Under Film Participation                Agreements** |
|--------|-------------------------------------------------------------------------------------|

|   |   |   |                             |   |   |   |   |   |   | **Investor                Loans** |
|--------|--------|--------|----------------------------------|--------|--------|--------|--------|--------|--------|-----------------------------------|
|   |   |   |                             |   |   |   |   |   |   |                              | **Scorched** |
|   |   |   |                             |   |   |   |   |   |   | **Tau**                           | **Earth** |
|   |   |   | **Specified                Use** |   |   |   |   |   |   | **Entertainment**                 | **Entertainment** |
|   |   |   |                             |   |   |   |   |   |   |                              |   |   |   |   |   |   |
|   |   |   | General                Fund (a)  |   |   |   |   |   |   |                              | $ | 950,000 |   | $ | - |   |
|   |   |   | The                Tenant        |   |   |   |   |   |   |                              |   | 1,300,000 |   |   | - |   |
|   |   |   | Borderland                       |   |   |   |   |   |   |                              |   | 1,799,719 |   |   | 500,000 |   |
|   |   |   | Wickerman                        |   |   |   |   |   |   |                              |   | 250,000 |   |   | - |   |
|   |   |   | Room                Service      |   |   |   |   |   |   |                              |   | 130,000 |   |   | - |   |
|   |   |   |                             |   |   |   |   |   |   |                              |   |   |   |   |   |   |
|   |   |   |                             |   |   |   |   |   |   |                              | $ | 4,429,719 |   | $ | 500,000 |   |

| **(a)  ** | **In                2005 FMLY returned/sent the $950,000 general fund monies to Tau                Enntertainment** |
|---------------------|---------------------------------------------------------------------------------------------------------------------|

**The      funds of $500,000 and $450,000 were wired on July 5, 2005**

** **
**.**

**F-19**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**7.**
**Notes      Payable Under Film Participation Agreements**

| **8.** | **Notes                Payable and Convertible                Debt** |
|--------|----------------------------------------------------------------------|

|                                                                                                    |                                                                                                   |                                                                                             |                                            |   |      |      |    |    |   |   |     |      |     |   |    |   |
|---------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|-------------------------------------------------|--------|-----------|-----------|---------|---------|--------|--------|----------|-----------|----------|--------|---------|--------|
|                                                                                                    |                                                                                                   |                                                                                             |                                            |   |      |      |    |    |   |   | **2005** |      | **2004** |   |
|                                                                                                    |                                                                                                   |                                                                                             |                                            |   |      |      |    |    |   |   |     |      |     |   |    |   |
| Note                payable to a bank under a $322,936 revolving line of credit that                was |                                                                                                   |                                                                                             |                                            |   |      |      |    |
|                                                                                                    | converted                to a term loan bearing interest at the banks prime rate                (4.00% |                                                                                             |                                            |   |      |      |    |    |
|                                                                                                    | at                June 30, 2005) plus 1.5% per year and due in monthly installments                    |                                                                                             |                                            |   |      |      |    |    |
|                                                                                                    | of                $5,382, plus interest through January 15, 2008. This note was                        |                                                                                             |                                            |   |      |      |    |    |
|                                                                                                    | collateralized                by the guarantees of two major stockholders of FMLY,                     |                                                                                             |                                            |   |      |      |    |    |
|                                                                                                    | including                FMLY's Chief Executive Officer, and was fully repaid in                2005   |                                                                                             | $                                               | -      |      | $         | 180,653 |    |
|                                                                                                    |                                                                                                   |                                                                                             |                                            |   |      |      |    |    |   |   |     |      |     |   |    |   |
| Notes                payable under convertible debt agreements                                          |                                                                                                   |                                                                                             |                                            |   |      | 2,000,000 |    |    | -      |   |
|                                                                                                    |                                                                                                   |                                                                                             |                                            |   |      |      |    |    |   |   |     |      |     |   |    |   |
|                                                                                                    |                                                                                                   | Total                contractual amounts of notes payable and long-term debt                     |                                            |   | 2,000,000 |      |    | 180,653 |   |
|                                                                                                    |                                                                                                   |                                                                                             |                                            |   |      |      |    |    |   |   |     |      |     |   |    |   |
|                                                                                                    |                                                                                                   | Less                un-amortized debt issue costs and beneficial conversion                costs |                                            |   | 716,529   |      |    | -       |   |
|                                                                                                    |                                                                                                   |                                                                                             |                                            |   |      |      |    |    |   |   |     |      |     |   |    |   |
|                                                                                                    |                                                                                                   |                                                                                             | Notes                payable and long-term debt |   |      |      |    |    |   |   | $        | 1,283,471 |     | $      | 180,653 |   |

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**8.**
**Notes      Payable and Convertible Debt, continued**

**9.**
**Accounts      Payable and Accrued Liabilities**

|   |   |   |                                    |   |   |   |   |   |   |   | **2005** |    | **2004** |   |
|--------|--------|--------|-----------------------------------------|--------|--------|--------|--------|--------|--------|--------|----------|---------|----------|--------|
|   |   |   |                                    |   |   |   |   |   |   |   |     |    |     |   |   |   |
|   |   |   | Accounts                payable         |   |   |   |   |   |   |   | $        | 89,097  |     | $      | 61,493 |   |
|   |   |   | Accrued                film costs       |   |   |   |   |   |   |   |     | -       |     |   | 81,400 |   |
|   |   |   | Accrued                Interest Payable |   |   |   |   |   |   |   |     | 109,975 |     |   | - |   |
|   |   |   |                                    |   |   |   |   |   |   |   |     |    |     |   |   |   |
|   |   |   |                                    |   |   |   |   |   |   |   | $        | 199,072 |     | $      | 142,893 |   |

**F-21**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

| **10.** | **Income                Taxes** |
|---------|---------------------------------|

|   |   |   |                                           |   |   |   |   |   |   |   |     |        |     |   |        |   |
|--------|--------|--------|------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|----------|-------------|----------|--------|-------------|--------|
|   |   |   |                                           |   |   |   |   |   |   |   | **2005** |        | **2004** |   |
|   |   |   |                                           |   |   |   |   |   |   |   |     |        |     |   |        |   |
|   |   |   | **Deferred                tax assets:**        |   |   |   |   |   |   |   |     |        |     |   |        |   |
|   |   |   | Net                operating losses            |   |   |   |   |   |   |   | $        | 3,305,763   |     | $      | 3,014,919   |   |
|   |   |   | Accounts                receivable - allowance |   |   |   |   |   |   |   |     |        |     |   |        |   |
|   |   |   | for                doubtful accounts           |   |   |   |   |   |   |   |     | -           |     |   | 28,050      |   |
|   |   |   | Valuation                allowance             |   |   |   |   |   |   |   |     | (3,302,763) |     |   | (3,035,274) |   |
|   |   |   |                                           |   |   |   |   |   |   |   |     |        |     |   |        |   |
|   |   |   | Total                deferred tax assets       |   |   |   |   |   |   |   |     | 3,000       |     |   | 7,695       |   |
|   |   |   |                                           |   |   |   |   |   |   |   |     |        |     |   |        |   |
|   |   |   | **Deferred                tax liabilities:**   |   |   |   |   |   |   |   |     |        |     |   |        |   |
|   |   |   | Basis                of property and equipment |   |   |   |   |   |   |   |     | 3,000       |     |   | 7,695       |   |
|   |   |   |                                           |   |   |   |   |   |   |   |     |        |     |   |        |   |
|   |   |   | Net                deferred tax asset          |   |   |   |   |   |   |   | $        | -           |     | $      | -           |   |

|   |   |   |                                             |   | **2005**   |     | **2004**    |   |
|--------|--------|--------|--------------------------------------------------|--------|------------|----------|-------------|--------|
|   |   |   |                                             |   | **Amount** |     | **Percent** |   | **Amount** |   | **Percent** |   |
|   |   |   |                                             |   |       |     |        |   |   |   |   |   |   |   |   |   |
|   |   |   | Benefit                for income tax at federal |   |       |     |        |   |   |   |   |   |   |   |   |   |
|   |   |   | statutory                rate                    |   | $          | 349,751  |        |   | 34% |   | $ | 1,473,004 |   |   | 34% |   |
|   |   |   | Non-deductible                stock-based        |   |       |     |        |   |   |   |   |   |   |   |   |   |
|   |   |   | compensation                                     |   |       | -        |        |   | 0% |   |   | (761,293 | ) |   | -18% |   |
|   |   |   | Non-deductible                loan costs         |   |       | (74,558  | )           |   | -20% |   |   | (262,750 | ) |   | -6% |   |
|   |   |   | Other,                including non-deductible   |   |       |     |        |   |   |   |   |   |   |   |   |   |
|   |   |   | business                meals and entertainment  |   |       | (7,704   | )           |   | -                % |   |   | (1,208 | ) |   | -                % |   |
|   |   |   | Change                in valuation allowance     |   |       | (267,489 | )           |   | -14% |   |   | (447,753 | ) |   | -10% |   |
|   |   |   |                                             |   |       |     |        |   |   |   |   |   |   |   |   |   |
|   |   |   |                                             |   | $          | -        |        |   | - |   | $ | - |   |   | - |   |

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**11.**
**Lease      Agreement **

|   |   |   | **Year**                    |   |   |   |   |   |   |   |   |   |   |       |    |   |
|--------|--------|--------|-----------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------------|---------|--------|
|   |   |   | **Ending**                  |   |   |   |   |   |   |   |   |   |   |       |    |   |
|   |   |   | **June                30,** |   |   |   |   |   |   |   |   |   |   | **Amount** |    |
|   |   |   |                        |   |   |   |   |   |   |   |   |   |   |       |    |   |
|   |   |   | 2006                        |   |   |   |   |   |   |   |   |   |   | $          | 74,074  |   |
|   |   |   | 2007                        |   |   |   |   |   |   |   |   |   |   |       | 44,077  |   |
|   |   |   |                        |   |   |   |   |   |   |   |   |   |   |       |    |   |
|   |   |   |                        |   |   |   |   |   |   |   |   |   |   | $          | 118,151 |   |

| **12.** | **Stockholders’                Equity** |
|---------|-----------------------------------------------|

**Common      Stock**

**Stock      Options**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**12.**
**Stockholders’      Equity, continued**

**Stock      Options, continued**

|   |   |   |                                        |   |   |   |   |   | **Number                of** |        | **Weighted**                |   |
|--------|--------|--------|---------------------------------------------|--------|--------|--------|--------|--------|------------------------------|-------------|-----------------------------|--------|
|   |   |   |                                        |   |   |   |   |   | **Shares**                   |        | **Average**                 |   |
|   |   |   |                                        |   |   |   |   |   | **Under**                    |        | **Exercise**                |   |
|   |   |   | **Description**                             |   |   |   |   |   | **Options**                  |        | **Price   ** |   |
|   |   |   |                                        |   |   |   |   |   |                         |        |                        |   |   |   |
|   |   |   | Outstanding                at June 30, 2003 |   |   |   |   |   |                         | 2,085,000   |                        | $      | 0.25 |   |
|   |   |   |                                        |   |   |   |   |   |                         |        |                        |   |   |   |
|   |   |   | Granted                                     |   |   |   |   |   |                         | -           |                        |   | - |   |
|   |   |   | Exercised                                   |   |   |   |   |   |                         | -           |                        |   | - |   |
|   |   |   | Forfeited                                   |   |   |   |   |   |                         | (460,000)   |                        |   | 0.25 |   |
|   |   |   |                                        |   |   |   |   |   |                         |        |                        |   |   |   |
|   |   |   | Outstanding                at June 30, 2004 |   |   |   |   |   |                         | 1,625,000   |                        |   | 0.25 |   |
|   |   |   |                                        |   |   |   |   |   |                         |        |                        |   |   |   |
|   |   |   | Granted                                     |   |   |   |   |   |                         | -           |                        |   | - |   |
|   |   |   | Exercised                                   |   |   |   |   |   |                         | -           |                        |   | - |   |
|   |   |   | Forfeited                                   |   |   |   |   |   |                         | (1,480,000) |                        |   | 0.25 |   |
|   |   |   |                                        |   |   |   |   |   |                         |        |                        |   |   |   |
|   |   |   | Outstanding                at June 30, 2005 |   |   |   |   |   |                         | 145,000     |                        |   | 0.25 |   |

|   |   |   |                                |   |   |   |   |                         |   | **Remaining**   |   |         |   |
|--------|--------|--------|-------------------------------------|--------|--------|--------|--------|------------------------------|--------|-----------------|--------|--------------|--------|
|   |   |   |                                |   |   |   |   |                         |   | **Contractual** |   |         |   |
|   |   |   |                                |   |   |   |   | **Expiration**               |   | **Life**        |   | **Exercise** |   |
|   |   |   | **Number                of Shares** |   |   |   |   | **Date**                     |   | **(Years)**     |   | **Price**    |   |
|   |   |   |                                |   |   |   |   |                         |   |            |   |         |   |
|   |   |   | 45,000                              |   |   |   |   | December                2006 |   | 1.5             |   | $0.25        |   |
|   |   |   | 100,000                             |   |   |   |   | June                2007     |   | 1.9             |   | $0.25        |   |
|   |   |   |                                |   |   |   |   |                         |   |            |   |         |   |
|   |   |   | 1,625,000                           |   |   |   |   |                         |   |            |   |         |   |

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**12.**
**Stockholders’      Equity, continued**

**Stock      Compensation Plan**

** **
** **
**Stock      Warrants**

|   |   |   |                                        |   |   |   |   |   |   |   |   | **Number                of** |       |
|--------|--------|--------|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|------------------------------|------------|
|   |   |   |                                        |   |   |   |   |   |   |   |   | **Shares**                   |       |
|   |   |   |                                        |   |   |   |   |   |   |   |   | **Under**                    |       |
|   |   |   | **Description**                             |   |   |   |   |   |   |   |   | **Warrants**                 |       |
|   |   |   |                                        |   |   |   |   |   |   |   |   |                         |       |   |
|   |   |   | Outstanding                at June 30, 2003 |   |   |   |   |   |   |   |   |                         | 2,500,000  |   |
|   |   |   |                                        |   |   |   |   |   |   |   |   |                         |       |   |
|   |   |   | Granted                                     |   |   |   |   |   |   |   |   |                         | 8,571,428  |   |
|   |   |   |                                        |   |   |   |   |   |   |   |   |                         |       |   |
|   |   |   | Outstanding                at June 30, 2004 |   |   |   |   |   |   |   |   |                         | 11,071,428 |   |
|   |   |   |                                        |   |   |   |   |   |   |   |   |                         |       |   |
|   |   |   | Granted                                     |   |   |   |   |   |   |   |   |                         | 23,333,334 |   |
|   |   |   |                                        |   |   |   |   |   |   |   |   |                         |       |   |
|   |   |   | Outstanding                at June 30, 2005 |   |   |   |   |   |   |   |   |                         | 34,404,762 |   |

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**12.**
**Stockholders’      Equity, continued**

**Stock      Warrants, continued**

|   |   |   |                                |   |   |   |                          |   |        |   | **Remaining**                 |   |   |   |   |
|--------|--------|--------|-------------------------------------|--------|--------|--------|-------------------------------|--------|-------------|--------|-------------------------------|--------|--------|--------|--------|
|   |   |   |                                |   |   |   |                          |   |        |   | **Contractual**               |   |   |   |   |
|   |   |   |                                |   |   |   | **Expiration**                |   | **Life**    |   | **Exercise**                  |   |
|   |   |   | **Number                of Shares** |   |   |   | **Date**                      |   | **(Years)** |   | **Price**                     |   |
|   |   |   |                                |   |   |   |                          |   |        |   |                          |   |   |   |   |   |
|   |   |   | 250,000                             |   |   |   | September                2006 |   | 1.3         |   | 110%                of market |   |
|   |   |   | 1,500,000                           |   |   |   | January                2008   |   | 2.5         |   | $3.00                         |   |
|   |   |   | 750,000                             |   |   |   | January                2008   |   | 2.5         |   | 65%                of market  |   |
|   |   |   | 5,000,000                           |   |   |   | January                2008   |   | 2.5         |   | $0.50                         |   |
|   |   |   | 3,571,428                           |   |   |   | January                2008   |   | 2.5         |   | $0.13                         |   |
|   |   |   | 23,333,334                          |   |   |   | November                2009  |   | 4.4         |   | $0.15                         |   |
|   |   |   |                                |   |   |   |                          |   |        |   |                          |   |   |   |   |   |
|   |   |   | 34,404,756                          |   |   |   |                          |   |        |   |                          |   |   |   |   |   |

**13.**
**Claims      and Contingencies**

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**14.**
**Major      Customers and Concentrations**

|   |   |   |                                                                     |   |   |   |   |   | **2005** |   | **2004** |   |
|--------|--------|--------|--------------------------------------------------------------------------|--------|--------|--------|--------|--------|----------|--------|----------|--------|
|   |   |   |                                                                     |   |   |   |   |   |     |   |     |   |   |   |
|   |   |   | Number                of customers accounting for more than 10%          |   |   | 1      |   |   | 2        |   |
|   |   |   | of                revenue                                                |   |   |   |   |   |     |   |     |   |   |   |
|   |   |   |                                                                     |   |   |   |   |   |     |   |
|   |   |   | Percentage                of total revenue derived from largest customer |   |   | 87%    |   |   | 77%      |   |
|   |   |   |                                                                     |   |   |   |   |   |     |   |     |   |   |   |
|   |   |   | Percentage                of total revenue derived from second largest   |   |   |   |   |   |     |   |
|   |   |   | customer                                                                 |   |   |   |   |   |     | 1%     |     |   | 10% |   |

**15.**
**Related      Party Transactions**

**16.**
**Non-Cash      Investing and Financing Activities**

|   |   |   |                                                            |   |   |    |   |   | **2005**  |    | **2004** |   |
|--------|--------|--------|-----------------------------------------------------------------|--------|--------|---------|--------|--------|-----------|---------|----------|--------|
|   |   |   |                                                            |   |   |    |   |   |      |    |     |   |   |   |
|   |   |   | Common                stock issued to convert debt to equity    |   | $      | -       |   | $      | 1,407,082 |    |
|   |   |   |                                                            |   |   |    |   |   |      |    |     |   |   |   |
|   |   |   | Beneficial                conversion value offset against       |   |   |    |   |   |      |    |
|   |   |   | convertible                debt and treated as an increase      |   |   |    |   |   |      |    |
|   |   |   | to                additional paid-in capital                    |   |   |    |   |   |      | 383,621 |     |   | 471,314 |   |
|   |   |   |                                                            |   |   |    |   |   |      |    |
|   |   |   | Warrants                issued to originate convertible debt    |   |   |    |   |   |      |    |
|   |   |   | and                treated as an increase to additional paid-in |   |   |    |   |   |      |    |
|   |   |   | capital                and an offset against convertible debt   |   |   | 250,667 |   |   | 208,542   |    |

----

**FAMILY      ROOM ENTERTAINMENT CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**17.      **
**Subsequent      Events**

**Stock      Issuances:**

**New      Subsidiaries:**

----